Avino Silver & Gold Mines - 20-F annual report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934.

[] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from January 31, 2007 to December 31, 2007

[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report______________

Commission File Number 0-9266

AVINO SILVER & GOLD MINES LTD.
(Exact name of Company as specified in its charter)

A CORPORATION FORMED UNDER THE LAWS OF BRITISH COLUMBIA, CANADA
(Jurisdiction of Incorporation or Organization)

455 Granville Street, Suite 400
Vancouver, British Columbia V6C 1T1, Canada
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act: NONE

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Common Shares, without Par Value
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

The number of outstanding Common Shares as of December 31, 2007 was 20,584,727.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [X] No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. [ ] Yes [X] No

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

*Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check on):
Large Accelerated File [ ] Accelerated Filer [ ] Non-Accelerated Filer [X]

Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 [X] Item 18 [ ]

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)

Indicate by check mark whether the Company has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. NOT APPLICABLE

TABLE OF CONTENTS

Introduction

     Avino Silver & Gold Mines Ltd., which we refer to as the "Company", was incorporated by Memorandum of Association under the laws of the Province of British Columbia on May 15, 1969, and on August 22, 1969, by virtue of an amalgamation with Ace Mining Company Ltd., became a public company whose common shares are registered under the United States Securities Exchange Act of 1934, as amended, and changed its name to Avino Mines & Resources Limited. On April 12, 1995, the Company changed its corporate name to International Avino Mines Ltd. and affected a reverse stock split of one common share for every five common shares outstanding. On August 29, 1997, the Company changed its corporate name to Avino Silver & Gold Mines Ltd. to better reflect the business of the Company of exploring for and mining silver and gold. Our principal executive office is located at Suite 400, 455 Granville Street, Vancouver, British Columbia V6C 1T1, Canada.

     In this transition report on Form 20-F, which we refer to as the "Transition Report", except as otherwise indicated or as the context otherwise requires, the "Company", "we" or "us" refers to Avino Silver & Gold Mines Ltd.

     You should rely only on the information contained in this Transition Report. We have not authorized anyone to provide you with information that is different. The information in this Transition Report may only be accurate on the date of this Transition Report or on or as at any other date provided with respect to specific information.

Currency

     Unless we otherwise indicate in this Transition Report, all references to "Canadian Dollars", "CDN$" or "$" are to the lawful currency of Canada and all references to "U.S. Dollars" or "US$" are to the lawful currency of the United States

Forward-looking Statements

     The following discussion contains forward-looking statements within the meaning of the United States Private Securities Legislation Reform Act of 1995 concerning the Company's plans for its mineral properties which may affect the future operating results and financial position. Such statements are subject to risks and uncertainties that could cause our actual results and financial position to differ materially from those anticipated in the forward-looking statements. These factors include, but are not limited to, the factors set forth in the sections entitled "Risk Factors" in Item 3.D., and "Operating and Financial Review and Prospects" in Item 5. Statements concerning reserves and resources may also be deemed to constitute forward-looking statements to the extent that such statements reflect the conclusion that deposits may be economically exploitable. Any statements that express or involve discussions with respect to predictions, expectations, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects", "does not expect", "is expected", "anticipates", "does not anticipate", "plans", "estimates", or "intends", or stating that certain actions, events or results "may", "could", "would", or "will" be taken, occur or be achieved) are not statements of historical fact and may be "forward-looking statements".

Cautionary Note to United States Investors Concerning Estimate of Measured and Indicated Mineral Resources

     We advise United States investors that although the terms "measured resources" and "indicated resources" are recognized and required by Canadian regulations, the United States Securities and Exchange Commission, referred to as the "SEC", does not recognize them. United States investors are cautioned not to

3

assume that all or any part of our mineral resources in these categories will ever be converted into mineral reserves.

GLOSSARY OF MINING TERMS

4

5

6

Part I

Item 1. Identity of Directors, Senior Management and Advisors

     Not applicable.

Item 2. Offer Statistics and Expected Timetable

     Not applicable.

Item 3. Key Information

     The selected historical financial information presented in the table below for each of the years ended December 31, 2007⁽¹⁾ and January 31, 2007, 2006, 2005 and 2004, is derived from the audited financial statements of the Company. The audited consolidated financial statements and notes for the eleven month period ended December 31, 2007 and the years ended January 31, 2007 and 2006 are included in this Transition Report. The selected historical financial information for each year ended January 31, 2005 and 2004, presented in the table below are derived from financial statements of the Company that are not included in this Transition Report. The selected financial information presented below should be read in conjunction with the Company's consolidated financial statements and the notes thereto (Item 17) and the Operating and Financial Review and Prospects (Item 5) included elsewhere in this Transition Report.

     The selected financial data has been prepared in accordance with Canadian generally accepted accounting principles, which we refer to as "Canadian GAAP". The consolidated financial statements included in Item 17 in this Transition Report are also prepared under Canadian GAAP. Included within these consolidated financial statements in Note 23 is a reconciliation between Canadian GAAP and United States generally accepted accounting principals, referred to as "US GAAP", which differ, among other things, in respect to the recording of the investments in marketable securities, deferred exploration expenditures and recognition of future income tax benefits on renouncement of Canadian exploration expenditures to flow-through investors.

^{_____________________________
(1)} In January 2008, the Company changed its financial year end from January 31 to December 31. Consequently this Annual Report is filed in connection to an 11 month fiscal year (referred hereinafter as fiscal year end “2007-II”)

7

8

Exchange Rates

The following table sets forth information as to the period end, average, the high and the low exchange rate for Canadian Dollars and U.S. Dollars for the periods indicated based on the noon buying rate in New York City for cable transfers in Canadian Dollars as certified for customs purposes by the Federal Reserve Bank of New York (Canadian dollar = US$1).

     The following table sets forth the high and low exchange rate for the past six months. As of June 20, 2008, the exchange rate was CDN$1.0172 for each US$1.

     In addition to the other information presented in this Transition Report, the following should be considered carefully in evaluating the Company and its business. This Transition Report contains

9

forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below and elsewhere in this Transition Report.

     We will be required to raise additional capital to mine our properties. The Company is currently in the exploration stage of its properties. If the Company determines based on its most recent information that it is feasible to begin operations on its properties, the Company will be required to raise additional capital in order to develop and bring the properties into production.

     We have incurred net losses since our inception and expect losses to continue. We have not been profitable since our inception. For the eleven months period ended December 31, 2007, we had a net loss of $885,863 and an accumulated deficit on December 31, 2007 of $21,644,049. The Company has not generated revenues from operations since 1998 and does not expect to generate revenues from operations until one or more of its properties are placed in production. There is no assurance that any of the Company's properties will be placed in production or that the Company's operations will be profitable in the future.

     The mining industry is highly speculative and involves substantial risks. Even when mining is conducted on properties known to contain significant quantities of ore deposits it is generally accepted in the mining industry that most exploration projects do not result in the discovery of mineable deposits of ore in a commercially economical manner. There may be limited availability of water, which is essential to milling operations, and interruptions may be caused by adverse weather conditions. Operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air quality standards, pollution and other environmental protection controls. Mining activities are subject to substantial operating hazards, some of which are not insurable or may not be insured for economic reasons.

     The commercial quantities of ore cannot be accurately predicted. Whether an ore body will be commercially viable depends on a number of factors including the particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as mineral prices and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in a mineral deposit being unprofitable.

     There are no assurances that we can produce minerals on a commercially viable basis. The Company's ability to generate revenue and profit is expected to occur through exploration of its existing properties as well as through acquisitions of interests in new properties. Substantial expenditures will be incurred in an attempt to establish the economic feasibility of mining operations by identifying mineral deposits and establishing ore reserves through drilling and other techniques, developing metallurgical processes to extract metals from ore, designing facilities and planning mining operations. The economic feasibility of a project depends on numerous factors, including the cost of mining and production facilities required to extract the desired minerals, the total mineral deposits that can be mined using a given facility, the proximity of the mineral deposits to a user of the minerals, and the market price of the minerals at the time of sale. There is no assurance that existing or future exploration programs or acquisitions will result in the identification of deposits that can be mined profitably.

     Mining operations and exploration activities are subject to various federal, provincial and local laws and regulations. Laws and regulation govern the development, mining, production, importing and exporting of minerals, taxes, labour standards, occupational health, waste disposal, protection of the environment, mine safety, toxic substances, and other matters. In many cases, licenses and permits are required to conduct mining operations. Amendments to current laws and regulations governing operations and activities of mining companies or more stringent implementation thereof could have a substantial adverse impact on the Company.

10

Applicable laws and regulations will require the Company to make certain capital and operating expenditures to initiate new operations. Under certain circumstances, the Company may be required to close an operation once it is started until a particular problem is remedied or to undertake other remedial actions.

     Market price is highly speculative. The market price of metals is highly speculative and volatile. Instability in metal prices may affect the interest in mining properties and the development of and production of such properties.

     Penny stock rules may make it more difficult to trade the Company's common shares. The SEC has adopted regulations which generally define a "penny stock" to be any equity security that has a market price, as defined, less than US$5.00 per share or an exercise price of less than US$5.00 per share, subject to certain exceptions. Our securities may be covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors such as institutions with assets in excess of US$5,000,000 or an individual with net worth in excess of US$1,000,000 or annual income exceeding US$200,000 or US$300,000 jointly with his or her spouse. For transactions covered by this rule, the broker-dealers must make a special suitability determination for the purchase and receive the purchaser's written agreement of the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also affect the ability of our investors to sell their shares in the secondary market.

     Title risks. The validity and ownership of mining property holdings can be uncertain and may be contested. Although the Company's properties in Canada are currently wholly owned by the Company, there are currently a number of pending and potential native title or traditional land owner claims in Canada. Accordingly, there can be no assurance that the Company's properties in Canada will not be affected.

     Competition for mineral land. There is a limited supply of desirable mineral lands available for acquisition, claim staking or leasing in the areas where the Company contemplates expanding its operations and conducting exploration activities. Many participants are engaged in the mining business, including large, established mining companies. Accordingly, there can be no assurance that the Company will be able to compete successfully for new mining properties.

     Competition for recruitment and retention of qualified personnel. We compete with other exploration companies, many of which have greater financial resources than us or are further in their development, for the recruitment and retention of qualified employees and other personnel. Competition for exploration resources at all levels is currently very intense, particularly affecting the availability of manpower, drill rigs and supplies. If we require and are unsuccessful in acquiring additional personnel or other exploration resources, we will not be able to grow at the rate we desire or at all.

     Uncertainty of exploration and development programs. The Company's profitability is significantly affected by the costs and results of its exploration and development programs. As mines have limited lives based on proven and probable mineral reserves, the Company actively seeks to expand its mineral reserves, primarily through exploration, development and strategic acquisitions. Exploration for minerals is highly speculative in nature, involves many risks and is frequently unsuccessful. Among the many uncertainties inherent in any gold and silver exploration and development program are the location of economic ore bodies, the development of appropriate metallurgical processes, the receipt of necessary governmental permits and the construction of mining and processing facilities. Assuming the discovery of an economic deposit, depending on the type of mining operation involved, several years may elapse from the initial phases of drilling until commercial operations are commenced and, during such time, the economic feasibility of production may change. Accordingly, the Company's exploration and development programs may not result in any new economically viable mining operations or yield new mineral reserves to expand current mineral reserves.

11

     Licenses and permits. The operations of the Company require licenses and permits from various governmental authorities. The Company believes that it holds all necessary licenses and permits under applicable laws and regulations and believes that it is presently complying in all material respects with the terms of such licenses and permits. However, such licenses and permits are subject to change in various circumstances. There can be no guarantee that the Company will be able to obtain or maintain all necessary licenses and permits as are required to explore and develop its properties, commence construction or operation of mining facilities and properties under exploration or development or to maintain continued operations that economically justify the cost.

     Political or economic instability or unexpected regulatory change. Certain of our properties are located in countries, provinces and states more likely to be subject to political and economic instability, or unexpected legislative change, than is usually the case in certain other countries, provinces and states. Our mineral exploration activities could be adversely effected by:

• political instability and violence;
• war and civil disturbances;
• expropriation or nationalization;
• changing fiscal regimes;
• fluctuations in currency exchange rates;
• high rates of inflation;
• underdeveloped industrial and economic infrastructure;
• changes in the regulatory environment governing mineral properties; and
• unenforceability of contractual rights;

any of which may adversely affect our business in that country.

     We may be adversely affected by fluctuations in foreign exchange rates. We maintain our bank accounts mainly in Canadian and U.S. Dollars. Any appreciation in the currency of Mexico or other countries where we may carryout exploration activities against the Canadian or U.S. Dollar will increase our costs of carrying out operations in such countries. In addition, any decrease in the U.S. Dollar against the Canadian Dollar will result in a loss on our books to the extent we hold funds in U.S. Dollars.

     Land Reclamation requirements. Although variable depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize the long term effects of land disturbance. Reclamation may include requirements to control dispersion of potentially deleterious effluents and reasonably re-establish pre-disturbance land forms and vegetation. In order to carry out reclamation obligations imposed on us in connection with our mineral exploration we must allocate financial resources that might otherwise be spent on further exploration programs.

     Litigation. Although the Company is not currently subject to litigation, it may become involved in disputes with other parties in the future which may result in litigation. Any litigation could be costly and time consuming and could divert our management from our business operations. In addition, if the Company is unable to resolve any litigation favorably, it may have a material adverse impact on the Company's financial performance, cash flow and results of operations.

     Acquisitions. The Company undertakes evaluations of opportunities to acquire additional gold and silver mining properties. Any resultant acquisitions may be significant in size, may change the scale of the Company's business, and may expose the Company to new geographic, political, operating, financial and geological risks. The Company's success in its acquisition activities depends on its ability to identify suitable

12

acquisition candidates, acquire them on acceptable terms, and integrate their operations successfully. Any acquisitions would be accompanied by risks, such as a significant decline in the price of gold or silver, the ore body proving to be below expectations, the difficulty of assimilating the operations and personnel of any acquired companies, the potential disruption of the Company's ongoing business, the inability of management to maximize the financial and strategic position of the Company through the successful integration of acquired assets and businesses, the maintenance of uniform standards, controls, procedures and policies, the impairment of relationships with customers and contractors as a result of any integration of new management personnel and the potential unknown liabilities associated with acquired mining properties. In addition, the Company may need additional capital to finance an acquisition. Historically, the Company has raised funds through equity financing and the exercise of options and warrants. However, the Company's ability to raise capital to acquire and explore resource properties may be adversely affected by the market prices for natural resources which are highly speculative and volatile. There can be no assurance that the Company would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions.

     Conflict of interest.Certain directors and officers of the Company are officers and/or directors of, or are associated with, other natural resource companies that acquire interests in mineral properties. Such associations may give rise to conflicts of interest from time to time. The directors are required by law, however, to act honestly and in good faith with a view to the best interests of the Company and its shareholders and to disclose any personal interest which they may have in any material transaction which is proposed to be entered into with the Company and to abstain from voting as a director for the approval of any such transaction.

     Dependence on management. We are dependent on the services of key executives including our President and Chief Executive Officer and other highly skilled and experienced executives and personnel focused on advancing our corporate objectives as well as the identification of new opportunities for growth and funding. Due to our relatively small size, the loss of these persons or our inability to attract and retain additional highly skilled employees required for our activities may have a material adverse effect on our business and financial condition.

     Uncertainty of continuing as a going concern. The continuation of the Company depends upon its ability to develop a self-supporting business and generate cash flow from operations and/or to raise equity capital through the sale of its securities. The Company will be required to raise new financing through the sale of shares or issuance of debt to continue with the exploration and development of its mineral properties. As a result, there is uncertainty about the Company's ability to continue as a going concern. The Company's consolidated financial statements do not include the adjustments that would be necessary if the Company were unable to continue as a going concern.

     Limited and volatile trading volume. Although the Company's common shares are listed on the TSX Venture Exchange, referred to as the "TSX-V" and the Frankfurt Stock Exchange, referred to as the "FSE" and quoted in the United States on the OTC Bulletin Board, referred to as the "OTC BB", the volume of trading has been limited and volatile in the past and is likely to continue to be so in the future, reducing the liquidity of an investment in the Company's common shares and making it difficult for investors to readily sell their shares in the open market. Without a liquid market for the Company's common shares, investors may be unable to sell their shares at favorable times and prices and may be required to hold their shares in declining markets or to sell them at unfavorable prices.

     Volatility of share price.In recent years, securities markets in Canada have experienced a high level of price volatility. The market price of many resource companies, particularly those, like the Company, that are considered speculative exploration companies, have experienced wide fluctuations in price, resulting in substantial losses to investors who have sold their shares at a low price point. These fluctuations are based only in part on the level of progress of exploration, and can reflect general economic and market trends, world

13

events or investor sentiment, and may sometimes bear no apparent relation to any objective factors or criteria. During the 2007-II fiscal year, the Company's common share price fluctuated between a low of $1.46 and a high of $2.75. Subsequent to the 2007-II fiscal year and as of May 31, 2008, the Company's common share price has fluctuated between a low of $1.36 and a high of $1.78. Significant fluctuations in the Company's common share price is likely to continue, and could potentially increase in the future.

     Difficulty for United States investors to effect services of process against the Company. The Company is incorporated under the laws of the Province of British Columbia, Canada. Consequently, it will be difficult for United States investors to affect service of process in the United States upon the directors or officers of the Company, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under the United States Securities Exchange Act of 1934, as amended. The majority of the Company's directors and officers are residents of Canada and all of the Company's assets are located outside of the United States. A judgment of a United States court predicated solely upon such civil liabilities would probably be enforceable in Canada by a Canadian court if the United States court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter. There is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or the Company predicated solely upon such civil liabilities.

Item 4. Information on the Company

Cautionary Note to United States Investors

     We describe our properties utilizing mining terminology such as "measured resources" and "indicated resources" that are required by Canadian regulations but are not recognized by the SEC. United States investors are cautioned not to assume that any part of the mineral deposits in these categories will ever be converted into reserves.

     The Company was incorporated by Memorandum of Association under the laws of the Province of British Columbia on May 15, 1969, and on August 22, 1969, by virtue of an amalgamation with Ace Mining Company Ltd., became a public company whose common shares are registered under the United States Securities Exchange Act of 1934, changing its name to Avino Mines & Resources Limited. On April 12, 1995, the Company changed its corporate name to International Avino Mines Ltd. and affected a reverse stock split of one common share for every five common shares outstanding. On August 29, 1997, the Company changed its corporate name to Avino Silver & Gold Mines Ltd., its current name, to better reflect the business of the Company of exploring for and mining silver and gold.

     We are a natural resource company, primarily engaged in the acquisition, exploration and development of natural resource properties. Our principal business activities have been the exploration of certain mineral properties located in Canada, specifically British Columbia and the Yukon Territory, and in Mexico. Since fiscal 2001 we capitalized expenditures of $607,668 on the properties in Canada. These capitalized expenditures consist of $187,854 on the Aumax property, $163,467 on the Olympic-Kelvin property, and $256,347 on the Minto property.

     On July 17, 2006, the Company completed the acquisition of Cia Minera, a Mexican corporation, through the acquisition of an additional 39.25% interest in Cia Minera which combined with the Company's pre-existing 49% share of Cia Minera, brought the Company's ownership interest in Cia Minera to 88.25% . The additional 39.25% interest in Cia Minera was obtained though the acquisition of 76.88% of the common shares of Promotora Avino S.A. De C.V., referred to as "Promotora", which in turn owns 49.75% of Cia Minera's common shares, and the direct acquisition of 1% of the common shares of Cia Minera.

14

     The July 17, 2006 acquisition was accomplished by a share exchange by which the Company issued 3,164,702 shares as consideration, which we refer to as the "Payment Shares", for the purchase of the additional 39.25% interest in Cia Minera. The Payment Shares were valued based on the July 17, 2006 closing market price of the Company's shares on the TSX-V.

     The Company has also acquired a further 1.1% interest in Cia Minera through the acquisition from an estate subject to approval and transfer of the shares to the Company by the trustee for the estate. On December 21, 2007 approval was received and the Company obtained the 1.1% interest from the estate for no additional consideration. As at December 31, 2007 the Company’s interest in Cia Minera is 89.35% .

     The principal executive office of the Company is located at Suite 400, 455 Granville Street, Vancouver, British Columbia V6C 1T1, and its telephone number is 604-682-3701.

Operations and Principal Activities

     The Company is a Canadian-based resource firm focused on silver and gold exploration. The Company has a long prior history of operation, beginning in 1968 with the development of the Avino Mine. From 1974 to 2001, the Avino Mine produced silver, gold, copper and lead and provided hundreds of jobs for the Durango region before closing due to depressed metal prices. Beginning in 2002, the Company re-directed its corporate strategy to focus almost entirely on silver and began acquiring silver properties in North America. The Company's most recent acquisitions, consisting of the Eagle property in Canada's Yukon Territory and the Aumax property in British Columbia, have produced positive assays for silver through drilling and sampling. The Avino Mine and surrounding mineral leases continue to hold silver potential. These properties, along with other silver and gold projects, will remain the Company's principal focus for the foreseeable future.

     Presently, the Company is an "exploration stage company", as all of the Company's properties are currently in the exploratory stage of development. In order to determine if a commercially viable mineral deposit exists in any of the Company's properties, further geological work will need to be done and a final evaluation based upon the results obtained to conclude economic and legal feasibility.

Significant Acquisitions and Significant Dispositions

     On July 17, 2006, the Company completed the acquisition of Cia Minera, a Mexican corporation, through the acquisition of an additional 39.25% interest in Cia Minera which combined with the Company's pre-existing 49% share of Cia Minera, brought the Company's ownership interest in Cia Minera to 88.25% . The additional 39.25% interest in Cia Minera was obtained though the acquisition of 76.88% of the common shares of Promotora, which in turn owns 49.75% of Cia Minera's common shares, and the direct acquisition of 1% of the common shares of Cia Minera.

     The July 17, 2006 acquisition was accomplished by a share exchange by which the Company issued 3,164,702 Payment Shares, for the purchase of the additional 39.25% interest in Cia Minera. The Payment Shares were valued based on the July 17, 2006 closing market price of the Company's shares on the TSX-V.

     The Company has also acquired a further 1.1% interest in Cia Minera through the acquisition from an estate subject to approval and transfer of the shares to the Company by the trustee for the estate. On December 21, 2007 approval was received and the Company obtained the 1.1% interest from the estate for no additional consideration. As at December 31, 2007 the Company’s interest in Cia Minera is 89.35% .

15

     We have no other significant acquisitions or dispositions of property, other than as otherwise disclosed in this Transition Report.

Competition

     The mining industry in which the Company is engaged is highly competitive. Competitors include well-capitalized mining companies, independent mining companies and other companies having financial and other resources far greater than those of the Company. The Company competes with other mining companies in connection with the acquisition of gold, silver and other precious metal properties. In general, properties with a higher grade of recoverable mineral and/or which are more readily mined afford the owners a competitive advantage in that the cost of production of the final mineral product is lower. In 2007, demand for silver exceeded supply and worldwide demand is expected to increase through 2008. This, in part, has fueled the increases in silver prices over the same period. Thus, a degree of competition exists between those engaged in the mining industry to acquire the most valuable properties. As a result, the Company may eventually be unable to acquire attractive gold or silver mining properties.

Seasonality

     Certain of our operations are conducted in British Columbia and the Yukon Territory. The weather during the colder seasons in these areas can be extreme and can cause interruptions or delays in our operations. As a result, the preferable time for activities in these regions is the spring and summer when costs are more reasonable and access to the properties is easier. In the summer months, however, if the weather has been unusually hot and dry, access to the Company's properties may be limited as a result of access restrictions being imposed to monitor the risks of forest fires.

Governmental Regulation

     The current and anticipated future operations of the Company, including development activities and commencement of production on its properties, require permits from various federal, territorial and local governmental authorities and such operations are and will be governed by laws and regulations governing prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Companies engaged in the development and operation of mines and related facilities generally experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. Such operations and exploration activities are also subject to substantial regulation under these laws by governmental agencies and may require that the Company obtain permits from various governmental agencies. The Company believes it is in substantial compliance with all material laws and regulations which currently apply to its activities. There can be no assurance, however, that all permits which the Company may require for construction of mining facilities and conduct of mining operations will be obtainable on reasonable terms or that such laws and regulations, or that new legislation or modifications to existing legislation, would not have an adverse effect on any exploration or mining project which the Company might undertake.

     Mineral exploration and mining in Mexico is covered under the Mining Law as first published in June 1992, and amended in April 2005. Mining operations in Mexico are administered by the Ministry of Economy. Environmental regulations are covered under "Ley General del Equilibrio Ecológio y la Protección al Ambiente" (General Law of Ecological Balance and Environmental Protection) and its regulations. Certain other environmental laws, including "Ley de Aguas Nacionales" (Law of National Waters) and "Ley Forestal" (Forestry Law) and their associated regulations may also cover certain operations. The kind of permits or authorizations required to conduct mining or mineral exploration operations in Mexico depend upon the type of operation. Common exploration activities do not require prior environmental authorization or licenses, but it is advisable to request a confirmation from the National Water Commission that planned operations will not

16

affect the water table. It is also necessary to confirm that any planned operations will not be conducted in protected natural areas.

     The Company has obtained all necessary permits and authorizations required for its current and anticipated exploration. The Company has had no material costs related to compliance and/or permits in recent years, and anticipates no material costs in the next year. Unfavorable amendments to current laws, regulations and permits governing operations and activities of resource exploration companies, or more stringent implementation thereof, could have a materially adverse impact on the Company and cause increases in capital expenditures which could result in a cessation of operations by the Company.

     Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in exploration and mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violation of applicable laws or regulations.

     The enactment of new laws or amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in capital expenditures or production costs or reduction in levels of production at producing properties or require abandonment or delays in the development of new mining properties.

     The Company's subsidiaries are the wholly-owned Oniva Silver and Gold Mines S.A. de C.V., referred to as "Oniva", Promotora, in which the Company has direct ownership of 79.09%, and Cia Minera in which the Company has a 50% direct ownership and an additional 49.75% of Cia Minera is held through Promotora. The Company's total ownership interest in Cia Minera is 89.35% .

All of the above subsidiaries are incorporated under the laws of Mexico.

     The Company is exploring five silver and gold projects in Canada and Mexico. All of the Company's mineral property interests in Canada are wholly owned by the Company. In Mexico, the Company has a 89.35% interest in Cia Minera, a Mexican company which is involved in the mining of commercial ores and resource exploration and development, including the operation of the Avino Mine. Exploration in Canada has in recent years, been limited to drill programs on our Olympic-Kelvin Property.

17

Eagle Property

     Ownership. The Eagle property is wholly owned by the Company and was acquired in 2003 when it acquired its 100% interest in 14 quartz leases by issuing 200,000 common shares at a price of $0.50 per share for total consideration of $100,000. The property was written down to a nominal value of $1 in fiscal 2006 by a charge to operations of $103,242.

     Property Description and Location. This property is located in the Yukon Territory approximately eight kilometers west of Keno City. The property covers approximately 516 hectares. It is currently in its Phase I stage of exploration. The property is accessed by road. Whitehorse, the nearest major city, is approximately 380 kilometres to the south of the village of Mayo. The village of Mayo is 60 kilometers to the southeast of Keno City. The Eagle property lies on the south-east facing slope of Galena Hill where the elevations range from about 1350 to 1540 m. Permafrost, while thin to non-existent in places, is reported to be found under accumulations of surface rubble left from glaciation.

     History. The Eagle property has produced positive assays for silver since exploration first occurred there in 1964. The initial drill program, consisting of 29 holes, encountered assays as high as 6,900 grams per tonne of silver over 1.2 metres in hole #23 and 1,708 grams per tonne of silver over 2.1 metres in hole JB1. Follow-up drilling in 1978, designed to expand on the discoveries of hole #23, encountered 18.7 metres of mineralization with values ranging from 11 to 132 grams per tonne of silver. This discovery became known as the Eagle vein. The Eagle property is part of the historic Keno Hill mining camp. The Keno Hill mining camp has historically been one of Canada's most productive for silver, lead and zinc. Between 1920 and 1988, the total reported production was 4,787,423 tonnes with recovered grades of 1.3 kilograms per tonne of silver, 5.6% lead and 3.1% zinc. Subsequent exploration in the district has discovered additional mineral deposits which may become productive.

     Proposed Work Program. A study carried out in August of 2002 recommended geochemical and geophysical exploration to examine the continuity of the Eagle vein. Drilling and underground exploration would follow based on the success of the first work. A budget of $160,000 has been proposed to carry out further work on the Eagle property. Our management is presently considering this proposal.

18

Aumax Property

     Ownership. The Aumax Property is wholly owned by the Company and was acquired in 2003 when it acquired a 100% interest in six unpatented mineral claims by issuing 200,000 common shares at a price of $0.50 per share and paying $4,000 in cash for total consideration of $104,000.

     Property Description and Location. The property is located in southern British Columbia approximately 16 kilometers southwest of the town of Lillooet. The property can be accessed from Lillooet by a logging road. The upper zone of the Aumax property can be accessed by hiking a further 1.5 km to the southwest. The property covers approximately 975 hectares and is located between Cayoosh Creek and Phair Creek. The showings were discovered in 1999. The showings have economically interesting gold and silver values.

     History. Cayoosh Creek has a history of limited placer gold production starting in the 1860's. Some of this production occurred immediately downstream of the property, near the mouth of Downtown Creek.

     A limited exploration program of prospecting, rock and soil sampling and mechanized trenching was carried out in October of 1999. Trenching on the Aumax showing was inconclusive. Many highly anomalous quartz-carbonate boulders, up to 2.2 grams per tonne of gold and 305 grams per tonne of silver, were excavated but bedrock was not reached in critical areas. Chip samples of veins exposed in the trenches were highly anomalous, generally in the hundreds of parts per billion gold, with one sample over one gram per tonne of gold over 0.5 metres. Further prospecting and soil sampling of the southeast (upslope) of the Aumax showing was recommended.

19

     Limited soil sampling and prospecting in 1999 on the Upper Zone returned extremely anomalous soil samples to 4,560 parts per billion gold. A grid geochemical sampling and further prospecting in this area was recommended.

     The Company has placed a deposit of $1,500 at December 31, 2007 (January 31, 2007:$1,500), registered in the name of the Ministry of Finance of British Columbia, as security for estimated future reclamation costs.

     Proposed Work Program.Geological studies conducted late in 2002 concluded that the discoveries to date lie downslope of the mineral source. A subsequent report in November 2004 recommended a Phase 1 program of more prospecting, geological mapping and additional soil sampling to determine the source of the mineralization. Based on the results of this program, Phase 2 exploration would include trenching and possible diamond drilling but to date, no work program has been proposed.

Olympic-Kelvin Property

     Ownership. The Olympic-Kelvin property is wholly owned by the Company and was acquired in 1987 when it acquired a 100% interest in 20 reverted Crown granted mineral claims, one located mineral claim and three fractions. The property was written down entirely in fiscal 2002.

     Property Description and Location. The Olympic-Kelvin property totals approximately 662.5 hectares and is located on the south side of Carpenter Lake, five kilometers northeast of Goldbridge in the Lillooet Mining Division, British Columbia.

     The Olympic-Kelvin property is easily accessible by the all-weather, publicly maintained, Grey Rock logging road which runs northeast from Goldbridge. Access on the Olympic-Kelvin property is possible on a number of cat trails built by the Company and previous operators.

     The Olympic-Kelvin property covers rocks of the Pioneer Formation and Bridge River Terrane. These rocks are cut by northwest trending regional scale structures sub-parallel to the Ferguson and Cadwallader Structures. The structures on the Olympic-Kelvin property are roughly the same distance from the Upper Cretaceous-Tertiary granitic Bendor Intrusions as the Bralorne/Pioneer mines. These mines are the largest past producers in the Canadian Cordillera (4.1 million ounces). The Bendor Intrusions are a postulated source for the gold mineralization at Bralorne, which is thought to be localized by a northwest to north flexure in the Cadwallader structure. A similar flexure is present in the northwest trending structures on the Olympic-Kelvin property. These structures on the property are mineralized with gold and silver and have received considerable past work, including at least four adits.

     History. The Company recommenced exploration on the Olympic-Kelvin property in January 2004, following up on work completed in 1988 that outlined two prospective areas for gold and silver, the Margarita Zone and the Enigma Zone.

     In the Margarita Zone, hole OLY 88-4 returned 24 grams per tonne of gold over 0.85 metres within a much wider intersection of 8.2 grams per tonne of gold over 3.48 metres. The true width of this zone is estimated to be 1.47 metres. A large part of the zone is listwanite, indicating the potential for better grade mineralization immediately below this intersection. Hole OLY 88-6 cut the same zone 75 metres to the northwest and returned 4.26 grams per tonne of gold over 1.34 metres within an eight metre section (5.6 m true width) of mainly listwanite. The area of these intersections is approximately 50 metres off of the Gray Rock Road and could be accessed for mining purposes by an underground ramp from the road.

20

     The Enigma Zone is a colour anomaly on the south shore of Carpenter Lake on Lot 6280, approximately 700 metres east, north-east of the Margarita Zone. Trenching revealed a quartz stock work zone with areas of abundant stibnite. Sampling returned 1.7 grams per ton of gold over 21 metres within a 75 metre mineralized zone. This is a very wide zone for the Bridge River Camp and, if the zone has significant strike length, it could be amenable to open pit mining. Hole 04-0k-04 was drilled 154 metres under the Enigma Zone. This hole returned highly anomalous gold values to 0.38 grams per tonne. Detailed geological mapping and geochemical sampling has been recommended.

     Drilling in January of 2005 was unsuccessful in intersecting the Margarita Zone. One hole was drilled from the east to attempt to intersect the zone. This hole was abandoned at 21.3 metres because of bad ground conditions. No values of economic interest were returned from samples taken from the hole.

     The Company has placed a deposit of $1,500 at December 31, 2007 (January 31, 2007: $1,500), registered in the name of the Ministry of Finance of British Columbia, as security for estimated future reclamation costs.

     No drilling on the Olympic Property was completed in 2007.

     Proposed Work Program. No further work is proposed at this time.

Minto Property

     Ownership. The Minto Property is wholly owned by the Company and was acquired in early 1985 when it acquired its 100% interest in eight Crown granted mineral claims, eight reverted Crown granted mineral claims and one located mineral claim. In fiscal 2002, the property was written down to a nominal value of $1.

     Property Description and Location. The Minto Property is situated about ten kilometers east of Goldbridge in the Bridge River gold district of British Columbia and adjoins the Olympic-Kelvin Property. The property covers approximately 204 hectares. The Minto property is situated in the Bralorne gold camp, about 160 kilometers, by air, north of Vancouver. The claims occupy the lake bed and north flank of Carpenter Lake. Access from Goldbridge is made via an all-weather gravel road which skirts the north shore of Carpenter Lake.

     Gold Bridge itself can be reached from Vancouver via Hope and Lillooet, a distance of 445 kilometers, or via Pemberton using the four-wheel-drive Hurley Pass route, a distance of 225 km.

     The terrain is rugged, typical of the eastern margin of the Coast Range Mountains. The claim group ranges in elevation from 650 meters on Carpenter Lake to a maximum of 1020 meters.

     The climate of the Bridge River District is transitional between humid coastal belt and more arid interior plateau. Annual precipitation is modest with a significant proportion falling as snow in the winter. Summers tend to be warm to hot depending on the altitude, and winters are moderately cold.

     History. The claim group has been explored intermittently for over sixty years and several gold-bearing structures are known on the property. Production from the Minto mine between 1934 and 1940 amounted to 88,900 tons of ore returning 17,558 ounces of gold and 50,582 ounces of silver. During 1985, geological, geochemical, and geophysical (VLF-EM) surveys were conducted and trenches were excavated in anomalous areas. In-fill soil geochemistry and further trenching were undertaken in 1987.

21

     A mechanized trenching program was carried out on the Minto Property in June, 2005 to test the Minto North and Jumper Zones. Seven trenches were excavated, sampled, mapped and reclaimed, usually in a one day period. Chip samples from all the trenches returned values from anomalous to economic levels in gold.

     In December 2006, the Company announced the results of the 2006 drilling program on the Minto Property. The four diamond core holes were drilled to explore down dip extensions of gold bearing structures originally discovered in trench 827 on the Minto North Zone.

     Holes MO-06-01 and 02 were drilled from a site approximately 10 metres west of trench 827. Hole MO-06-03 was drilled from a site approximately 2 metres north and 7 metres east of MO-06-01 and 02. Hole MO-06-04 was drilled from the same set-up.

     The gold bearing structures consist of sets of parallel narrow (1-2 mm) fractures containing quartz, carbonate, grey sulphide veinlets. Assay samples from the four holes drilled conveyed from 1.04 grams per ten to 45.4 grams per ton.

     The Company has placed a deposit of $2,500 at December 31, 2007 (January 31, 2007: $2,500), registered in the name of the Ministry of Finance of British Columbia, as security for estimated future reclamation costs.

     Proposed Work Program. One hole has been drilled to a depth of approximately 1,647 feet and the assay results are still pending. No further work program has been proposed.

Avino Mine

     Ownership. The Company has a 89.35% ownership interest in Cia Minera, a company incorporated under the laws of Mexico. Cia Minera owns the Avino Mine. The Company acquired its 49% interest in Cia

22

Minera in 1968, an additional interest of 39.25% in July 2006 and a further 1.1% interest in December 2007. The Company continues to consider its options with relation to the remaining equity interest.

Cia Minera leases four core mineral claims in consideration for royalties. The lessor had contested the underlying royalty agreement, and had filed a legal action claiming royalties were owed from years prior to the Company’s acquisition of control of Cia Minera. An amicable settlement was negotiated during the period ended December 31, 2007 whereby the Company settled the dispute at a cost of $1,497,604 (settlement denominated in USD$1,500,000). The $1,497,604 amount, less a prior year accrual of $738,302 is recorded in litigation settlement expense. The Company paid a $1,398,457 (USD$1,400,000) portion of the settlement and the $99,130 balance owing (USD$100,000) is recorded in accounts payable, which is to be repaid during the Company’s 2008 year-end.

     Property Description and Location. The Avino Mine is located approximately 74 kilometers to the northeast of the city of Durango and covers approximately 4,364 hectares. The mine is accessible via road. The Avino Mine had been an open pit operation until March 1993, at which time Cia Minera commenced underground operations. Mineralized rock is broken by ripping, drilling and blasting and is trucked to the concentrator, approximately 415 meters from the pit, where it is processed. The Avino Mine was an underground operation at the time of closure.

     History. On July 17, 2006, the Company completed the acquisition of an additional 39.25% equity interest on Cia Minera in consideration of the issuance of an aggregate of 3,164,702 common shares of the Company. As a result of this transaction, the Company increased its ownership interest in Cia Minera to 88.25% . There was no change in the effective control of the Company as a result of this transaction. The acquisition of a further 1.1% interest in Cia Minera from an estate for no additional consideration was approved on December 21, 2007. As at December 31, 2007, the Company’s ownership interest in Cia Minera is 89.35% .

     The Avino Mine operated from 1974 to 2001, producing about 497 tons of silver, three tons of gold, and 11,000 tons of copper until the suspension of mining operations in November 2001. Since that time, the mine plant and equipment have been on care and maintenance and the Company has spent $515,816 on the care and maintenance of the mine.

     The Avino Mine and mill were historically serviced by a heavy equipment repair shop, a mechanical and electrical shop, an assay office, a metallurgical laboratory, a warehouse and other auxiliary facilities. Electric power can be supplied by the government-owned Federal Electricity Commission, referred to as the "FEC" which presently is capable of supplying up to 2500 HP to the Avino Mine and mill. As the mill is expanded, additional power must be obtained from the FEC. In order to obtain the additional electric power, it has been necessary for the FEC in 1983 to construct a new power line approximately 12 miles in length which is capable of supplying an additional 2750 HP, sufficient for the maximum proposed increase in mill capacity.

     Water for use at the mill is primarily obtained from: (i) wells; (ii) old underground workings; and (iii) earth dams. In prior years, the water supply has been insufficient to increase the capacity of the mill. In 1989, Cia Minera constructed a dam in hope of storing water for use in the dry season. The dam has a capacity of 1,000,000 cubic meters. Cia Minera had entered into an agreement with the Federal Government of Mexico for the repair and improvement of a government dam located approximately five and one-half kilometers from the mine. The contract provides that the Government and Cia Minera will each contribute 50% of the cost of repairing the dam and raising the height by six meters and to construct a new spillway. The work was substantially completed during 1989, and Cia Minera installed a pipeline system allowing water to flow from the Government dam to the mill. The contract provides that Cia Minera will share the use of the Government dam with local farmers. The local farmers have priority for the use of a specific volume of the water and the balance is available for use by the mine. The water can be transmitted to the mine by means of five kilometers

23

of pipe which has been installed by Cia Minera. In early 1996, Cia Minera also drilled a well 400 meters in depth on a property owned by Cia Minera, ten kilometers from the mill site. A pipeline has been constructed, and Cia Minera has sufficient water for its own needs. Further, from 1995 to 1998, Mexico experienced a drought. While the drought adversely affected operations in late 1995 until April 1996, Cia Minera believes that the new well will adequately meet its water requirements. In addition, Cia Minera utilizes water conservation practices, such as recirculation of water and capturing rain water in earth dams.

     In April 2006, Wardrop Engineering Inc., which we refer to as "Wardrop", completed the study on "Tailings Retreatment Process Options for the Avino Tailings Project in Durango, Mexico", referred to as the "Wardrop Report". The Wardrop Report concluded the oxide tailing is amenable to cyanidation with agglomerated heap leach as the method of choice followed by Merril Crowe precipitation of the silver and gold. The sulphide tailing would require sampling and further metallurgical test work before a proper assessment can be made.

     The preliminary evaluation of the oxide tailings suggested the capital cost for a 500,000 ton per year, 4 year operation is US$16,200,000 and the cost to operate per ton of tailings is US$8.64. Capital Costs for a plant twice the size and half the life was US$22,700,000. The internal rate of return and the net present value favoured the 4 year operation.

     The capital cost estimate includes a 25% contingency and it is based on new equipment. A reduction in capital cost can be accomplished with good used equipment.

     The disclosure of the implied values is preliminary in nature and includes inferred mineral resources that are considered to be too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary assessment will be realized.

     The heap leach process design in the study was based on a column test performed at Process Research Associates Limited from a composite of samples from the lower and middle bench. These samples were collected and documented in the October 2005 report entitled "A Tailings Resource" by Minestart Management Inc. for whom the qualified person was Bryan Slim, MBA, P. Eng. Recovery of silver and gold from the column test was 73% and 78.9% respectively after 81 days.

     Mr. Rick Alexander P. Eng., an independent qualified person as defined by applicable Canadian rules has prepared the capital cost estimate and co-coordinated Wardrop's work on the Avino Tailings Project.

     In December 2006, the Company announced results of the first 6 diamond core drill holes exploring the Avino silver, gold and copper deposit at its wholly owned property 80 km northeast of Durango, Mexico.

     The Company operated the mine from 1976 to 2001 when closure was caused by low silver, gold and copper prices and the local smelter closing for toll processing. The 2006 drill program was designed to test for continuity down dip below the existing workings of the three principal areas of mineralization (San Luis, Elena-Tolosa, and Chirumbo). The Avino vein system strikes principally east west over 1.2 km and dips south at 60 - 70º.

     The initial hole CH-06-03 intersected the Avino vein system 180 m below the original Chirumbo workings. The hole intersected both the main Vein/Breccia zone and the footwall breccias as follows:

CH-06-03 Azimuth 340º Dip - 50º length 453.75 m
Avino Vein 182.8 – 194.8 m, (12 m), 32.61 g/t Ag, 0.29% Cu
Footwall Breccia 204.8 m – 216.8 m, (12 m), 52.41 g/t Ag, 0.31% Cu

24

(Down Hole Lengths) True widths are not known.

     The four holes ET-06-01, 02, 03, 04 explored the down dip and down plunge, extension of the main ore shoot (Elena-Tolosa) on which most underground mining has occurred in the past. Holes ET-06-01 and ET-06-02 intersected the Avino Vein System approximately 40 m below Level 11 ½ (the last level in production when the mine closed in November 2001). Holes ET-06-03 and ET-06-04 intersected the ore-zone approximately 180 m below Level 11 ½. Results from the four holes were as follows:

(All lengths are down hole) True widths are not known.

     Hole SL-06-01 was drilled below the San Luis workings at the western end of the Avino Vein System. Details were as follows:

     Drill core from the holes was assayed by Inspectorate Labs at their facilities in Durango Mexico and Sparks Nevada U.S.A. The assay methods were gold (Au) fire assay with AA finish, silver (Ag) fire assay with gravimetric finish and copper (Cu) by 30 element ICP package. Sampling procedures, chain of custody etc. are compliant with NI 43-101.

     As at December 31, 2007, the Company had drilled 82 holes totaling approximately 18,000 metres on different targets across the Avino Property. Significant intersections are as follows:

25

26

     Sample lengths of the NQ drill core were diamond sawed into halves by mine staff and shipped to Inspectorate Labs in Durango, Mexico, for preparation into pulps and rejects. Pulps were analyzed at Inspectorate Labs in Sparks, Nevada. Gold and silver were analyzed by fire assay using Aqua Regia Leach and AA finish. Other elements are reported from a 29 element I.C.P. package.

     Sample lengths of the NQ drill core were diamond sawed into halves by mine staff and shipped to Inspectorate Labs in Durango, Mexico, for preparation into pulps and rejects. Pulps were analyzed at Inspectorate Labs in Sparks, Nevada. Gold and silver were analyzed by fire assay using Aqua Regia Leach and AA finish. Other elements are reported from a 29 element I.C.P. package.

     The Company is now focusing on drilling the San Gonzalo vein system in order to establish a drill indicated resource for San Gonzalo. The Company has also recently completed building a new drill core storage facility which will store in excess of 40,000 metres of core.

27

     Subsequent to the year end, the Company announced the results of a seven hole diamond drill program on the San Gonzalo gold, silver, lead, zinc structure situated 2 km northeast of its former producing Avino mine (1976 – 2001).

     The San Gonzalo structure strikes northwest/southeast and dips very steeply (85-90°) towards the southwest. The principal intersections are:

     Hole SG-07-08 missed the ore shoot and encountered only low gold and silver values. For holes SG-07-09, 10 and 11 only gold results have been received to date. We will release results when silver and base metal assays are received.

     The Company also announced significant intersections from holes SG-07-12 and SG-07-13 as follows:

     SG-07-12 (Dip 53 total length 175.45 m)

     Down hole intersection length 165.65 -- 169.45 m (3.80 m) 9.5 g/t gold, 655 g/t silver, 574 ppm copper, 2,872 ppm lead, 2503 ppm zinc.

Includes:

28

     SG-07-13 (Dip 50 total length 160.55)

     Down Hole Intersection Lengths 147.45 - -- 153.00 m (5.55m) 1.12 g/t gold, 189 g/t silver, 0.28% lead, 0.43% zinc.

     Or

     149.05 -- 153.00 m (3.59m) 1.39 g/t gold, 230 g/t silver 544 ppm Copper, 3,211 ppm Lead and 4368 Zinc

Includes:

     In September 2006, the Company commissioned an independent plant audit by Herb Osborne and Associates, a widely recognized expert in process plant evaluations, to conduct a full review of the plant, including the condition of all equipment, the capacity of each circuit, and the efficiency of plant. The report was an order of magnitude cost estimate for the processing plant and is not NI 43-101 compliant as it does not include underground development work.

     The Avino process plant was built initially in the 1970’s refurbished and capacity increased in 1993. Most of the infrastructure is in place for an ongoing 1000 TPD operation. Some of the buildings will require cleanup and repair and refurbishment. The plant was fully permitted but remains in temporary closure. Permits will have to be brought current.

     At the time of shutdown in 2001 with low commodity prices the mill was operating at an average rate of 1130 TPD. The concentration ratio (weight) ranged from 2.5 to 3.5% i.e. producing 25-30 TPD of concentrate at a 20-25 g/t Au, 2-4 Kg/t Ag and 22-24% Cu. Prior to shut down the average cost per ton milled was approximately US $16/ton and about US $7/ton for freight treatment and refining charges from the smelter. A new mining value cut off grade was determined to be around US $30/ton. This followed a review of the historical production and financial figures.

     The report concluded that the process plant can be brought back into operation in as little as three months contingent upon the availability of operators and mechanics for about US $1 million for an operating life of 5 to 10 years. A more realistic schedule would be nine months to accommodate the time required to ready the mine for continuous production. The operating life of 5 to 10 years refers to the operating life of the

29

processing plant after the capital expenditures and not the operating life of the mine. The Company has not completed a feasibility study and this should not be perceived as a projection.

     The report also concluded that the existing tailings pond is near capacity and that there is adequate space with reasonable gradients adjacent to the existing tailings to construct a new tailings area as well as space for a future heap leach operation on previously disturbed ground. Order of magnitude cost estimate for this tailings facility is based on a starter dam and monitoring devices necessary for a ten year life is a little over US $2 million.

     Total capital expenditure to achieve a 10 year operating plan is therefore estimated to be around US $3 million and a reasonable valuation of the property as an operating entity is US $40 million. The valuation of US $40 million by Herb Osborne and Associates is the construction value for a new 1,000 TPD plant with new equipment and is not a value of the property as an operating entity.

     The Company is also considering dewatering the main trackless decline ramp in 2008. This will allow access for development of underground workings and drilling to bring the ore blocks into NI 43-101 compliance.

     In December 2006, the Company contracted Peter E. Walcott & Associates to carry out an 80 km line deep penetrating IP Survey at its Avino property in Mexico. IP Geophysics will help identify drill targets for the upcoming years. The IP Survey was completed in 2007. Once a final report has been received from Peter E. Walcott & Associates, Avino is planning to conduct follow-up soil geochemical, satellite imagery and other surveys to better define targets in the covered areas.

Proposed Work Program. As a result of the numerous ore-grade intersections encountered at San Gonzalo, a 43-101-compliant resource calculation is now underway for this zone. Avino has retained David Gunning, P. Eng., a Qualified Person under 43-101, who is reviewing all results. Avino also plans to extract and process a 10,000-tonne bulk sample from San Gonzalo. This program will provide concentrate for testing at various smelters. In preparation for the sampling, Avino will re-commission a 250-ton circuit at the mill to facilitate the processing of lead-silver ore from San Gonzalo. A critical part of the 2008 exploration will include further drilling on a number of known zones. Cerro San Jose, Aguila Mexicana and Santa Ana are expected key targets, but drilling should be widespread across the property.

Bralorne Mine Property

     On November 26, 1991, the Company acquired a 100% interest in a property consisting of 154 Crown granted mineral claims, five reverted Crown granted claims, four located mineral claims and two placer leases. These interests are collectively referred to as the "Bralorne Property". Pursuant to an option and joint venture agreement with Bralorne Gold Mines Ltd. (“Bralorne”) dated July 21, 1993 and amended on July 12, 1994, referred to as the "JV Agreement", Bralorne acquired the right to acquire a 50% interest in the Bralorne Property. We then entered into a further agreement with Bralorne dated July 21, 1995 under which the original JV Agreement was amended. Under the terms of the amended agreement, Bralorne acquired its 50% interest in the Bralorne Property. The Bralorne Property was then operated as a joint venture between the Company and Bralorne.

     Effective June 20, 2002, the Company transferred its interest in the Bralorne Property to Bralorne for a nominal amount of $1 and the assumption by Bralorne of the full amount of the principal of US$2,000,000 and interest payable under the mortgage bonds originally issued for a loan obtained by the Company and Bralorne in 1995, the proceeds of which were to be used for further development of the Bralorne Property. As a result of the disposition of the Bralorne Property, the Company recognized a loss of $40,097 and removed certain assets and liabilities from proportionate consolidation in 2003.

30

Item 5. Operating and Financial Review and Prospects

The following discussion and analysis of the operations, results and financial position of Avino Silver & Gold Ltd. for the eleven month period ended December 31, 2007 should be read in conjunction with the December 31, 2007 Consolidated Financial Statements and the notes thereto.

This Management’ Discussion and Analysis (“MD&A”) is dated April 29, 2008 and discloses specified information up to that date. Avino is classified as a “venture issuer” for the purposes of National Instrument 51-102. The Company’s financial statements are prepared in accordance with generally accepted accounting principles in Canada. Unless otherwise cited, references to dollar amounts are Canadian dollars.

Throughout this report we refer to “Avino”, the “Company”, “we”, “us”, “our” or “its”. All these terms are used in respect of Avino Silver & Gold Mines Ltd. We recommend that readers consult the “Cautionary Statement” on the last page of this report. Additional information relating to the Company is available on SEDAR at www.sedar.com.

Business Description

Founded in 1969, Avino’s principal business activities are the exploration and development of mineral properties. The Company holds an 89.35% ownership interest in Compañía Minera Mexicana de Avino, S.A. de C.V. (“Cia Minera”), a Mexican corporation which owns the Avino Silver Mine, located in Durango, Mexico (“Avino Mine”). The Company also holds mineral claims in the Yukon and British Columbia.

Avino is a reporting issuer in British Columbia and Alberta, a foreign issuer with the Securities & Exchange Commission and trades on the TSX Venture Exchange under the symbol ASM, on the OTCBB under the symbol ASGMF and on the Berlin & Frankfurt Stock Exchanges under the symbol GV6. In November 2006, the Company’s listing on the TSX Ventures Exchange was elevated to Tier 1 status. In January 2008, Avino announced the change of its financial year end from January 31 to December 31. The change was completed in order to align the Company’s financial statements reporting requirement with its Mexico subsidiaries which operate on a calendar fiscal year.

Overall Performance

The following is a summary of significant events and transactions during the period ended December 31, 2007:

31

Outlook

In the near term, we will continue our exploration on the Avino property. A critical part of the 2008 exploration will include further drilling on a number of known zones, including the San Gonzalo ore deposit and the ET zone on the main Avino Vein from which the company mined gold from 1975 through 2001. We also plan to extract and process a 10,000-tonne bulk sample from San Gonzalo. This program will provide concentrate for testing at various smelters. In preparation for the sampling, Avino will re-commission a 250-ton circuit at the mill to facilitate the processing of lead-silver ore from San Gonzalo. In addition, as a result of the numerous ore-grade intersections encountered at San Gonzalo, a 43-101 compliant resource calculation will be produced in the 2008 fiscal year.

Selected Annual Information

The following financial data is derived from the Company’s financial statements for the three most recently completed financial years:

The eleven month period ended December 31, 2007 experienced a draw down on working capital and total assets because there were no funds raised through the issuance of stock in that period or by other means whereas the fiscal year ended January 31, 2007 saw the Company significantly increase its working capital by raising $10 million in cash through a private placement of 5 million units at a price of $2.00 per unit.

The private placement noted above also contributed to the total assets increasing in the year ended January 31, 2007 in conjunction with the acquisition of controlling interest in Cia Minera. Because of the acquisition, mineral property and property, plant and equipment carrying values on the books increased by $9,525,575 and $996,964 respectively during that year.

In the fiscal year ended January 31, 2006 there was a $342,596 obligation regarding Cia Minera. With the

32

acquisition of control of Cia Minera in the year ended January 31, 2007 the liabilities in Cia Minera became consolidated with the Company and are no longer reported as a separate obligation. The acquisition of control of Cia Minera also resulted in a different liability at that time however and that was a future income tax liability of $2,335,999. The most recent fiscal year has seen a reduction in that liability of $501,083 due to a future income tax recovery representing Mexican tax loss carry forward amounts available to offset the Mexican based future income tax liability. The future income tax liability and the future income tax recovery are due to the difference in carrying amounts and tax bases of the Mexican mineral properties, mine plant, and equipment, which were acquired in the purchase of Cia Minera.

Results of Operations

Two months ended December 31, 2007 compared with the three months ended January 31, 2007.

Operating and administrative expenses

Operating and administrative expenses had a negative amount of $99,136 for the two month period ended December 31, 2007 compared with $793,890 for quarter ended January 31, 2007, a positive difference of $893,026. The amount for the current quarter was negative as a result of an adjustment whereby $139,779 in general exploration and $104,386 in office and miscellaneous were capitalized instead of expensed. Excluding these adjustments, the current quarter operating and administrative expenses would have been $145,029, a decrease of $648,861 from the comparative quarter. This change is attributed to decreases of $7,160 in amortization, $8,000 in management fees, $39,392 in salaries and benefits, $225,411 in shareholder and investor relations, $389,287 in stock-based compensation and $19,329 in travel and entertainment. Offsetting those decreases were increases of $21,412 in professional fees and $38,705 in regulatory and compliance fees.

As noted earlier, the Company changed its fiscal year end from January 31 to December 31, thus creating a fourth quarter consisting of two months for the current period compared to the standard three month period for the comparative quarter. The shorter current period length is solely responsible for the decrease in management fees and partially responsible for the other cost reductions with the exception of amortization. Salaries and benefits were also lower due to some of these costs being capitalized under exploration instead of being expensed. The shareholder and investor relations expense was dramatically higher in the prior year’s fourth quarter because of the fair value attributed to the granting of stock options to investor relations service providers. There were also fewer investor relations service agreements in effect for the current period. Another factor was employee stock-based compensation which had an amount charged to operations in the quarter ended January 31, 2007 as opposed to no such cost applied in the current year. Travel costs decreased partially as a result of less international trade show participation in the current period.

Part of the reason for higher professional fees is the reliance on a professional Mexican-based accounting firm to provide accounting services for Cia Minera’s operations. Regulatory and appliance fees in the two month period ended December 31, 2007 were minimal due to no share capital activity. The prior year’s quarter had a year end adjustment whereby some regulatory and compliance fees were reclassified as share issuance costs and this created an overall increase when the two periods are compared.

Loss for the period

The loss for the two month period ended December 31, 2007 was $168,616 compared with a loss of $891,249 for the quarter ended January 31, 2007, a decrease of $722,633. The current period had a future income tax benefit of $501,083 which accounts for a large part of this difference. The large difference in operating and administrative expenses between the two periods discussed above is primarily negated by a litigation settlement expense of $759,302 in the current period. This was the excess amount paid over the previously booked accrued liability concerning the royalty dispute on the four core mineral claims leased by Cia Minera.

33

In regards to interest income, the current two month period earned $51,996 compared to $114,647 in the comparative period, a decrease of 62,651.

Eleven months ended December 31, 2007 compared with the twelve months ended January 31, 2007.

Operating and administrative expenses

General and administrative expenses totaled $868,527 for the eleven month period ended December 31, 2007 compared with $4,014,734 for the twelve month period ended January 31, 2007, a decrease of $3,146,207. The largest individual expense decrease for the period was due to the recognition of stock based compensation for options to employees in the twelve month period ended January 31, 2007. The amount charged to operations in the current year was $nil compared to $2,860,603 in the comparative period. Other cost decreases include $88,263 in general exploration, $4,505 in office and miscellaneous, $13,241 in regulatory and compliance fees, $14,203 in salaries and benefits, $201,614 in shareholder and investor relations and $33,261 in travel costs. Offsetting these decreases were increases of $1,000 in management fees and $69,114 in professional fees.

The reasons for the changes to shareholder and investor relations and travel and entertainment are the same as those for the fourth quarter comparison. The lower costs that were mostly influenced by the shorter fiscal year were office and miscellaneous, salaries and benefits, and management fees. Management fees however, showed a slight increase because there was an increase in the monthly compensation for the President that took effect part way through the year ended January 31, 2007. Professional fees were quite higher in the current year because of legal fees associated with the royalty settlement and prior year audit fees which turned out to be higher than the estimated year end accrual and as such the extra amount was charged to the current year. Audit fees had also risen due to complex accounting issues arising from the acquisition of control of Cia Minera and the first year of consolidation. General exploration expenses decreased by a large amount because with control of Cia Minera and the resulting consolidation, more of these costs are now capitalized. Regulatory and compliance fees in the twelve month period ended January 31, 2007 were higher due to the filing fees associated with the $10 million private placement compared to no such items in the current period. There was no share capital activity in the current year and this resulted in minimal fees with the exception of annual sustaining and SEDAR fees.

Loss for the period

Loss for the eleven month period ended December 31, 2007 was $885,863 compared with a loss of $3,648,539 for the twelve month period ended January 31, 2007, a decrease of $2,762,676. Whereas the overall general and administrative costs for the current year were $3,146,207 lower than the prior year, the other income and expense items in the current year had a net effect of reducing this difference. The current period had a decrease of $70,892 in interest and other income and charges of $759,302 relating to the royalty settlement and $86,155 relating to the misappropriation of bank funds. The prior year did not incur such other expenses. The prior year also did not incur a future income tax benefit compared to the $501,083 that was incurred in the current period.

Summary of Quarterly Results

34

The quarterly losses have been influenced by site assessment costs pertaining to Cia Minera including feasibility studies and associated overhead costs pertaining to traveling to Mexico on a frequent basis. These costs have been replaced with general exploration and administrative costs associated with ramping up exploration on Cia Minera’s mineral properties. Since the $10 million private placement that took place in the quarter ended April 30, 2006, there was more emphasis on shareholder and investor relations activities and company promotion for the following five quarters. Higher interest revenue in each quarter since Q1-April 30, 2006 is due to the Company carrying more cash and has helped offset the increase in costs and make them appear more consistent with periods prior to the private placement. Stock-based compensation is one item that causes significant swings in the losses between the first four quarters. The degree of impact caused by stock-based compensation in Q1-April 30, 2006 was $2,363,336 followed by $389,287 in Q4-January 31, 2007, and $53,990 in each of Q3-October 31, 2006 and Q2-July 31, 2006. There was no employee stock-based compensation charged to operations in the most recent four quarters. If not for some adjustments that reduced general exploration expenditures by $139,779 and office and miscellaneous charges by $104,386, the loss for the period in Q4-December, 2007 would have been significantly higher than the prior three quarters. The Q4-December 31, 2007 period also incurred a litigation settlement expense of $759,302 and a future income tax recovery of $501,083 whereas the other quarters did not incur such items.

Liquidity and Capital Resources

During the eleven month period ended December 31, 2007 the Company capitalized exploration expenditures that increased its mineral property carrying value on its Mexican properties by $2,263,332 and by $69,018 on its British Columbia properties. At this time the Company has no operating revenues but has earned interest income of $359,339 in the current eleven month period. Although the Company’s cash and cash equivalents continues to be drawn down by operations, the Company will continue to earn significant interest revenue throughout the next fiscal year.

At December 31, 2007, the Company had working capital of $6,091,032 and cash and cash equivalents of $6,342,481. The Company is continuing its exploration program and preparing for a bulk sampling program in Mexico. The estimated drilling costs for Mexico this year is $1,200,000 and the cost for the 10,000 tonne bulk sampling program is estimated to be $2,100,000 for capital costs and $500,000 for operating costs. There are no significant plans for the British Columbia properties for the remainder of the new fiscal year. The Company has sufficient cash on hand at this time to finance the planned exploration work on its mineral properties and maintain administrative operations through December 31, 2008.

The Company is in the exploration stage until such time that the Avino mine is opened again. The investment in and expenditures on the mineral properties comprise most of the Company’s assets along with a lesser asset amount in regards to the Avino mine facilities and equipment. The recoverability of amounts shown for its mineral property interest and related deferred costs and the Company’s ability to continue as a going concern is dependent upon the continued support from its directors, the discovery of economically recoverable reserves and the ability of the Company to obtain the financing necessary to complete development and achieve profitable operations in the future. The outcome of these matters cannot be predicted at this time.

Mineral exploration and development is capital extensive, and in order to re-commence operations at the Avino Mine, the Company may be required to raise new equity capital in the future. There is no assurance that the Company will be successful in raising additional new equity capital.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

35

Transactions with Related Parties

During the eleven month period ended December 31, 2007, the company paid, or made provision for the future payment of the following amounts to related parties:

Amounts due to related parties consist of $147,424 (January 31, 2007 - $133,919) due to Oniva; $18,250 (January 31, 2007 - $7,500) due to Directors for Directors fees; $3,707 (January 31, 2007 - $105) due to a Director for expense reimbursements; $145 (January 31, 2007 - $Nil) due to a company controlled by a director of a related public company for expense reimbursements; $2,684 (January 31, 2007 - $Nil) due to a company controlled by a director of a related public company for geological services; and $4,578 (January 31, 2007 - $Nil) due to ABC Drilling.

All related party transactions are recorded at the value agreed upon by the Company and the related party. The amounts due from and due to related parties are non-interest bearing, non-secured and with no stated terms of repayment.

Disclosure of Management Compensation

During the eleven month period ended December 31, 2007, $88,000 was paid to the President for services as director and officer of the Company; $13,633 was paid to the Secretary for services as an officer of the Company; and $2,250 was paid to the Chief Financial Officer for services as an officer of the Company.

36

Changes in Accounting Policies

Effective February 1, 2007, the Company adopted the following new accounting standards issued by the Canadian Institute of Chartered Accountants (“CICA”). These accounting policy changes were adopted on a prospective basis with no restatement of prior period consolidated financial statements:

Section 1530 Comprehensive Income

Section 3251 Equity

Section 3855 Financial Instruments – Recognition and Measurement

Section 3861 Financial Instruments – Disclosure and Presentation

Section 3865 Hedges

These standards address the classification, recognition and measurement of financials instruments, the inclusion of other comprehensive income, and establish the standards for hedge accounting. Upon the adoption of these new standards the Company classified its investments in related companies as available-for-sale, which are measured at fair value, and recorded a $17,117 increase in their carrying value as at February 1, 2007; representing the aggregate cumulative unrealized gain, on the statement of accumulated other comprehensive income. There were no other opening adjustments recorded on the adoption of these standards.

On February 1, 2007, the Company also adopted CICA Section 1506Accounting Changes, which expands requirements relating to voluntary changes in accounting principles, and requires the Company to disclose new sources of GAAP that have been issued but are not yet effective.

Outstanding Share Data

The Company has an unlimited number of common shares without par value as authorized share capital of which 20,584,727 were outstanding as at December 31, 2007 and April 29, 2008.

The following are details of outstanding share options as at December 31, 2007 and April 29, 2008:

37

The following are details of outstanding warrants as at December 31, 2007 and April 29, 2008:

Commitments

The Company entered into a cost sharing agreement dated October 1, 1997, and amended November 1, 2003 to reimburse Oniva for a percentage of its overhead expenses, to reimburse 100% of its out-of-pocket expenses incurred on behalf of the Company, and to pay a percentage fee based on the total overhead and corporate expenses. The agreement may be terminated with one-month notice by either party. Transactions and balances with Oniva, which is a related company, are disclosed in the transactions with related parties section.

The Company has a contractual minimum drilling commitment for the exploration of its mineral properties in Durango, Mexico. As at December 31, 2007 the Company is committed to drilling services at an estimated cost of $286,949 (USD$290,405). Management expects that the Company’s drilling services equipment in fiscal 2008 will likely exceed the minimum commitment amount.

The Company has also entered into a service agreement in which operating services will be performed in Durango, Mexico at a U.S. dollar denominated cost of USD$7,500/month until September 2008 resulting in a commitment of $66,913 (USD$67,500).

Disclosure Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of the Company are responsible for evaluating the effectiveness of the Company’s disclosure controls and procedures and have concluded, based on our evaluation, that they are effective as at December 31, 2007 to ensure that information required to be disclosed in reports filed or submitted under Canadian securities legislation is recorded, processed, summarized and reported within the time period specified in those rules and regulations.

Internal Controls Over Financial Reporting

The Chief Executive Officer and the Chief Financial Officer of the Company are responsible for designing internal controls over financial reporting, or causing them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. The Company assessed the design of the internal controls over financial reporting as at December 31, 2007 and concluded that there are material weaknesses in internal controls over financial reporting, which are as follows:

38

house knowledge to address complex accounting and tax issues that may arise.

The weaknesses and their related risks are not uncommon in a company the size of the Company because of limitations in size and number of staff. The Company believes it has taken steps to mitigate these risks by consulting outside advisors and involving the Audit Committee and Board of Directors in reviews and consultations where necessary. However, these weaknesses in internal controls over financial reporting could result in a more than remote likelihood that a material misstatement would not be prevented or detected. The Company believes that it must take additional steps to further mitigate these risks by consulting outside advisors on a more regular and timely basis and continuing to do periodic on-site inspections of the accounting records in Mexico.

There have been no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Item 6. Directors, Senior Management and Employees

     The following is a list of the Company's directors and senior management as at June 20, 2008. The directors are elected for a term of one year during the annual meeting of shareholders. This year’s annual meeting will be held on July 4, 2008.

39

     The Company pays its independent directors $750 per quarter. The Chairman of each committee is also paid $250 per quarter. During the most recent fiscal year, the Company paid an aggregate of $88,000 to Intermark Capital Corp., a private BC corporation controlled by David Wolfin, President and a director of the Company for management advisory services. The Company paid an aggregate of $65,577 to ABC Drilling Services Inc., a BC private corporation whose common directors include Louis Wolfin and David Wolfin for drilling services. The Company paid an aggregate of $40,513 to National Media Associates, a business significantly influenced by Michael Baybak, a director of the Company for investor relations services. As at June 20, 2008, incentive stock options have been granted to non-employee directors of the Company to purchase an aggregate of 180,000 shares of the Company at a price of $1.20 per share exercisable on or before October 21, 2008, of which 138,200 have been exercised; 180,000 shares of the Company at a price of $1.35 per share exercisable on or before April 5, 2010 and September 26, 2010, of which 7,500 have been exercised; 380,000 shares of the Company at a price of $3.99 per share exercisable on or before April 26, 2011, none of

40

which have been exercised; and 140,000 shares of the Company at a price of $1.65 per share exercisable on or before February 27, 2013, none of which have been exercised.

     The following table sets forth particulars concerning the compensation paid or accrued for services rendered to the Company in all capacities during each of the last three financial years of the Company to its Chief Executive Officer, Chief Financial Officer and to the other executive officers of the Company who received a combined salary and bonus in excess of $150,000 (the “Named Executive Officers” during the financial year ended December 31, 2007).

     The Company granted no stock options to the Named Executive Officers during the most recent fiscal year.

     The Company currently maintains a formal stock option plan, referred to as the "Plan", under which stock options have been granted and may be granted to purchase a number equal to 10% of the Company's issued capital from time to time. To date, stock options to purchase a total of up to 2,051,300 shares have been granted and remain outstanding under the Plan, leaving 7,173 options available for issuance.

Termination of Employment, Changes in Responsibilities and Employment Contracts

     There are no employment contracts between the Company and its executive officers and the Company has no compensatory plan or arrangement with respect to its executive officers in the event of the resignation, retirement or any other termination of the executive officers' employment with the Company or in the event of a change of control of the Company or in the event of a change in the executive officers' responsibilities following a change in control, where in respect of the executive officers the value of such compensation exceeds $100,000.

     The board of directors is currently comprised of five directors. The size and experience of the board is important for providing the Company with effective governance in the mining industry. The board's mandate and responsibilities can be effectively and efficiently administered at its current size. The chairman of the

41

board is not a member of management. The board has functioned, and is of the view that it can continue to function, independently of management as required. At the Annual General Meeting, held on July 4, 2008, the shareholders elected Messrs. Andrews, Baybak, Robertson, Wolfin, Wolfin and Chevillon as directors.

     The board has considered the relationship of each director to the Company and currently considers four of the six directors to be "unrelated" (Messrs. Andrews, Baybak, Robertson and Chevillon). "Unrelated director" means a director who is independent of management and free from any interest and any business or other relationship which could reasonably be perceived to materially interfere with the director's ability to act with a view to the best interest of the Company, other than interests and relationships arising solely from shareholdings.

     Two of the directors (Messrs. Wolfin and Wolfin) are related family members.

     Procedures are in place to allow the board to function independently. At the present time the board has experienced directors that have made a significant contribution to the Company's success, and are satisfied that it is not constrained in its access to information, in its deliberations or in its ability to satisfy the mandate established by law to supervise the business and affairs of the Company. Committees meet independent of management and other directors.

Mandate of the Board of Directors, its Committees and Management

     The role of the board is to oversee the conduct of the Company's business, including the supervision of management, and determining the Company's strategy. Management is responsible for the Company's day to day operations, including proposing its strategic direction and presenting budgets and business plans to the board of directors for consideration and approval. The strategic plan takes into account, among other things, the opportunities and risks of the Company's business. Management provides the board with periodic assessments as to those risks and the implementation of the Company's systems to manage those risks. The board reviews the personnel needs of the Company from time to time, having particular regard to succession issues relating to senior management. Management is responsible for the training and development of personnel. The board assesses how effectively the Company communicates with shareholders, but has not adopted a formal communications policy. Through the audit committee, and in conjunction with its auditors, the board assesses the adequacy of the Company's internal control and management information systems. The board looks to management to keep it informed of all significant developments relating to or effecting the Company's operations. Major financings, acquisitions, dispositions and investments are subject to board approval. A formal mandate for the board of directors, the chief executive officer and the chief financial officer has not been considered necessary since the relative allocation of responsibility is well understood by both management and the board. The board meets as required. The board and committees may take action at these meetings or at a meeting by conference call or by written consent.

Committees

Audit Committee

     The audit committee assists the board in its oversight of the Company's financial statements and other related public disclosures, the Company's compliance with legal and regulatory requirements relating to financial reporting, the external auditors, qualifications and independence and the performance of the internal audit function and the external auditors. The committee has direct communications channels with the Company's auditors. The committee reviews the Company's financial statements and related management's discussion and analysis of financial and operating results. The committee can retain legal, accounting or other advisors.

42

     The audit committee currently consists of three directors (Messrs. David Wolfin, Lloyd J. Andrews and Gary Robertson). Two of the members are unrelated and all of whom are financially literate, and have accounting or related financial expertise. "Financially literate" means the ability to read and understand a balance sheet, an income statement, and a cash flow statement. "Accounting or related financial expertise" means the ability to analyze and interpret a full set of financial statements, including the notes attached thereto, in accordance with Canadian GAAP.

     The board has adopted a charter for the audit committee which is reviewed annually and sets out the role and oversight responsibilities of the audit committee with respect to:

• its relationship with and expectation of the external auditors, including the establishment of the independence of the external auditor and the approval of any non-audit mandates of the external auditor;

• determination of which non-audit services the external auditor is prohibited from providing;

• the engagement, evaluation, remuneration, and termination of the external auditors;

• appropriate funding for the payment of the auditor's compensation and for any advisors retained by the audit committee;

• its relationship with and expectation of the internal auditor;

• its oversight of internal control;

• disclosure of financial and related information; and

• any other matter that the audit committee feels is important to its mandate or that which the board chooses to delegate to it.

Compensation Committee

     The compensation committee recommends to the board of directors the compensation of the Company's directors and the Chief Executive Officer which the compensation committee feels is suitable. Its recommendations are reached primarily by comparison of the remuneration paid by the Company with publicly available information on remuneration paid by other reporting issuers that the compensation committee feels are similarly placed within the same business of the Company.

     The compensation committee consists of two unrelated directors (Messrs. Robertson and Andrews) and one related director (Mr. D. Wolfin). It is intended that the compensation committee will eventually be comprised of solely unrelated directors.

Corporate Governance Committee

     The corporate governance committee assists the board in establishing the Company’s corporate governance policies and practices generally, identifying individuals qualified to become members of the board, reviewing the composition and functioning of the board and its committees and making recommendations to the board of directors as appropriate. When considering nominees to the board the committee’s mandate requires that it consider the current composition of the board and give consideration to candidates having experience in the industry, life experience and background. The committee is also responsible for the Company’s corporate governance guidelines. The committee may retain legal or other advisors.

43

     The corporate governance committee currently consists of three directors (Messrs. Lloyd J. Andrews, Gary Robertson and Louis Wolfin). Messrs. Andrews and Robertson are unrelated directors. It is intended that this committee will eventually be comprised solely of unrelated and independent directors.

     The Company has 11 employees located in Mexico, nine with Cia Minera and 2 with Oniva.

     The following table sets forth the share ownership of the directors and officers of the Company as of May 27, 2008.

Outstanding Options

     The following information, as of May 27, 2008, reflects outstanding options held by the Named Executive Officers:

⁽¹⁾ Options granted prior to his appointment as CFO

Item 7. Major Shareholders and Related Party Transactions

     As far as it is known to the Company, it is not directly or indirectly owned or controlled by any other corporation or by the Canadian Government, or any foreign government, or by any other natural or legal person.

44

     As of May 27, 2008 the Company knew of no person who owned more than five (5%) percent of the outstanding shares of each class of the Company's voting securities.

     During the eleven months ended December 31, 2007, the Company paid, or made provision for the future payment, of the following amounts to related parties:

Amounts due to related parties consist of $147,424 (January 31, 2007 - $133,919) due to Oniva; $18,250 (January 31, 2007 - $7,500) due to Directors for Directors fees; $3,707 (January 31, 2007 - $105) due to a Director for expense reimbursements; $145 (January 31, 2007 - $Nil) due to a company controlled by a director of a related public company for expense reimbursements; $2,684 (January 31, 2007 - $Nil) due to a company controlled by a director of a related public company for geological services; and $4,578 (January 31, 2007 - $Nil) due to ABC Drilling.

All related party transactions are recorded at the value agreed upon by the Company and the related party. The amounts due from and due to related parties are non-interest bearing, non-secured and with no stated terms of repayment.

     Not Applicable.

45

Item 8. Financial Information

The following financial statements of the Company are attached to this Transition Report:

• Audit Report of Independent Registered Public Accounting Firm;

• Consolidated Balance Sheets as at December 31, 2007 and January 31, 2007;

• Consolidated Statements of Operations and Comprehensive Loss for the eleven month period ended December 31, 2007 and the years ended January 31, 2007 and 2006;

• Consolidated Statements of Deficit and Accumulated Other Comprehensive Income for the eleven month period ended December 31, 2007 and the years ended January 31, 2007 and January 31, 2006;

• Consolidated Statements of Cash Flows for the eleven month period ended December 31, 2007, and the years ended January 31, 2007 and January 31, 2006; and

• Notes to the Consolidated Financial Statements for the eleven months period ended December 31, 2007, and the years ended January 31, 2007, and January 31, 2006.

Dividend Policy

The Company has never paid any dividends and does not intend to in the near future.

     None.

Item 9. The Offer and Listing

     The common shares of the Company are listed on the TSX-V under the symbol "ASM", on the FSE under the symbol "GV6" and quoted in the United States on the OTC BB, under the symbol "ASGMF".

     As of June 18, 2008, there were 692 holders of record in the United States holding 75.32% of the Company's outstanding common shares representing approximately 68.58% of the total shareholders. The Company's common shares are issued in registered form and the percentage of shares reported to be held by record holders in the United States is taken from the records of the Pacific Corporate Trust Company in the City of Vancouver, the registrar and transfer agent for the common shares.

     The following sets forth the high and low prices expressed in Canadian Dollars on the TSX-V for the Company's common shares for the past five years, for each quarter for the last two fiscal years, and for the last six months.

46

     Not Applicable.

     The common shares of the Company are listed on the TSX-V under the symbol "ASM", on the FSE under the symbol "GV6" and quoted in the United States on the OTC BB, under the symbol "ASGMF".

     Not Applicable.

     Not Applicable.

     Not Applicable.

47

Item 10. Additional Information

     Not Applicable.

Common Shares

     All issued and outstanding common shares are fully paid and non-assessable. Each holder of record of common shares is entitled to one vote for each common share so held on all matters requiring a vote of shareholders, including the election of directors. The holders of common shares will be entitled to dividends on a pro-rata basis, if and when as declared by the board of directors. There are no preferences, conversion rights, preemptive rights, subscription rights, or restrictions or transfers attached to the common shares. In the event of liquidation, dissolution, or winding up of the Company, the holders of common shares are entitled to participate in the assets of the Company available for distribution after satisfaction of the claims of creditors.

Powers and Duties of Directors

     The directors shall manage or supervise the management of the affairs and business of the Company and shall have authority to exercise all such powers of the Company as are not, by the British Columbia Business Corporations Act or by the Memorandum or the Articles, required to be exercised by the Company in a general meeting.

     Directors will serve as such until the next annual meeting. In general, a director who is, in any way, directly or indirectly interested in an existing or proposed contract or transaction with the Company whereby a duty or interest might be created to conflict with his duty or interest as a director, shall declare the nature and extent of his interest in such contract or transaction or the conflict or potential conflict with his duty and interest as a director. Such director shall not vote in respect of any such contract or transaction with the Company in which he is interested and if he shall do so, his vote shall note be counted, but he shall be counted in the quorum present at the meeting at which such vote is taken. However, notwithstanding the foregoing, directors shall have the right to vote on determining the remuneration of the directors.

     The directors may from time to time on behalf of the Company: (a) borrow money in such manner and amount from such sources and upon such terms and conditions as they think fit; (b) issue bonds, debentures and other debt obligations; and (c) mortgage, charge or give other security on the whole or any part of the property and assets of the Company.

     The directors of the Company must be persons of the full age of 18 years. There is no minimum share ownership to be a Director. No person shall be a Director of the Company who is not capable of managing their own affairs; is an undischarged bankrupt; convicted of an offense in connection with the promotion, formation or management of a corporation or involved in fraud within the last five years; or a person that has had a registration in any capacity under the British Columbia Securities Act or the British Columbia Mortgage Brokers Act canceled within the last five years.

Shareholders

     An annual general meeting shall be held once in every calendar year at such time and place as may be determined by the directors. A quorum at an annual general meeting and special meeting shall be two shareholders or one or more proxy holders representing two shareholders, or one shareholder and a proxy

48

holder representing another shareholder. There is no limitation imposed by the laws of Canada or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote the common shares, other than as provided in the Investment Canada Act, referred to as the "Investment Act", discussed below under "Item 10. Additional Information, D. Exchange Controls."

     In accordance with British Columbia law, directors shall be elected by an "ordinary resolution" which means: (a) a resolution passed by the shareholders of the Company at a general meeting by a simple majority of the votes cast in person or by proxy; or (b) a resolution that has been submitted to the shareholders of the Company who would have been entitled to vote on it in person or by proxy at a general meeting of the Company and that has been consented to in writing by such shareholders of the Company holding shares carrying not less than the requisite majority of the votes entitled to be cast on it.

     Under British Columbia law certain items such as an amendment to the Company's articles or entering into a merger requires approval by a special resolution which means: (a) a resolution passed by a majority of not less than the requisite majority of the votes cast by the shareholders of the Company who, being entitled to do so, vote in person or by proxy at a general meeting of the company; or (b) a resolution consented to in writing by every shareholder of the Company who would have been entitled to vote in person or by proxy at a general meeting of the Company, and a resolution so consented to is deemed to be a special resolution passed at a general meeting of the Company.

     The Company entered into a share exchange agreement dated for reference the 9^th day of June, 2004 with Pedro Sanchez Mejorada, Fernando Ysita Del Hoyo, Francisco Ysita del Hoyo, Bernardo Ysita del Hoyo, Carlos Ysita del Hoyo, Manuel Ysita del Hoyo, Eduardo Ysita del Hoyo, Mercedes Ysita del Hoyo, Cia Minera and Promotora in connection with the acquisition of the remaining 51% interest in Cia Minera. The consideration to be paid by the Company for the 51% interest consists of four million common shares of the Company. This agreement was subject to a number of conditions including a satisfactory due diligence review and final regulatory approval. The TSX-V approved the agreement on October 18, 2005. The acquisition of an additional 39.25% interest in Cia Minera was completed on July 17, 2006 for consideration of 3,164,702 common shares of the Company and the acquisition of a further 1.1% from an estate for no additional consideration was completed on December 21, 2007. The Company now has an 89.35% ownership interest in Cia Minera and continues to consider its options with relation to the balance of the interest.

     The Company entered into a cost sharing agreement dated October 1, 1997, and amended November 1, 2003 to reimburse Oniva International for a variable percentage of its overhead expenses, to reimburse 100% of its out-of-pocket expenses incurred on behalf of the company, and to pay a percentage fee based on the total overhead and corporate expenses. The agreement may be terminated with one-month notice by either party.

     The Company entered into a 12 month agreement in with National Media to provide financial relations, media relations and public market development services. The Company has agreed to pay National Media US$6,000 per month, and the contract can be terminated after September 15, 2006 upon 30 days' notice by the Company. The agreement with National Media expired on March 15, 2007, and the Company’s commitment under the agreement as at January 31, 2007 totaled $10,613 (US$9,000).

     The Company entered into a 12 month Investor Relations Agreement with Investor Relations Group Inc., formerly called Investors Relations Services Group John Mullen & Partners, referred to as "IRS", to provide investor relations services in Europe. In consideration for the services rendered, the Company agreed to pay IRS fees of $2,000 per month plus expenses. Pursuant to the agreement’s terms and conditions, the agreement with IRS was terminated on June 27, 2007, and the Company’s commitment under the agreement as at January 31, 2007 totaled $16,000.

49

     The Company has a contractual minimum drilling commitment for the exploration of its mineral properties in Durango, Mexico. As at December 31, 2007 the Company is committed to drilling services at an estimated cost of $286,949, which is denominated in U.S. dollars (US$290,405). Management has determined that the Company’s exploration in fiscal 2008 will likely exceed the minimum commitment.

     The Company has also entered into an agreement in which monthly operation services will be performed through to September 2008 in Durango, Mexico at a total committed cost of $66,913 (services denominated in US$67,500).

     Please refer to note 20 of the financial statements included elsewhere in this Transition Report (Item 17) for further disclosure regarding material commitments.

     Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of the Issuer’s securities, except as discussed in “10.E. Taxation” below.

     There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of “control” of the Company by a “non-Canadian”. The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of the Company. “Non-Canadian” generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.

Canadian Federal Income Tax Consequences

     The following summarizes the principal Canadian federal income tax consequences applicable to the holding and disposition of common shares in the capital of the Company by a United States resident, and who holds common shares solely as capital property, referred to as a "U.S. Holder". This summary is based on the current provisions of theIncome Tax Act (Canada), referred to as the "Tax Act", the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of Revenue Canada, Customs, Excise and Taxation, and the current provisions of the Canada-United States Income Tax Convention, 1980, as amended, referred to as the "Treaty". Except as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign (including without limitation, any United States) tax law or treaty. It has been assumed that all currently proposed amendments will be enacted substantially as proposed and that there is no other relevant change in any governing law or practice, although no assurance can be given in these respects.

     Each U.S. Holder is advised to obtain tax and legal advice applicable to such U.S. Holder's particular circumstances.

     Every U.S. Holder is liable to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holder's common shares. The statutory rate of withholding tax is 25% of the gross amount of the dividend paid. The Treaty reduces the statutory rate with respect to dividends paid to a U.S. Holder for the purposes of the Treaty. Where applicable, the general rate of withholding tax under the Treaty is 15% of the gross amount of the dividend, but if the U.S. Holder is a

50

company that owns at least 10% of the voting stock of the Company and beneficially owns the dividend, the rate of withholding tax is 5% for dividends paid or credited after 1996 to such corporate U.S. Holder. The Company is required to withhold the applicable tax from the dividend payable to the U.S. Holder, and to remit the tax to the Receiver General of Canada for the account of the U. S. Holder.

     Pursuant to the Tax Act, a U.S. Holder will not be subject to Canadian capital gains tax on any capital gain realized on an actual or deemed disposition of a common share, including a deemed disposition on death, provided that the U.S. Holder did not hold the common share as capital property used in carrying on a business in Canada, and that neither the U.S. Holder nor persons with whom the U.S. Holder did not deal at arms length (alone or together) owned or had the right or an option to acquire 25% or more of the issued shares of any class of the Company at any time in the five years immediately preceding the disposition.

United States Federal Income Tax Consequences

Passive Foreign Investment Company

     The Company believes that it is a passive foreign investment company, referred to as a "PFIC" for United States federal income tax purposes with respect to a United States Investor. The Company will be a PFIC with respect to a United States Investor if, for any taxable year in which such United States Investor held the Company's shares, either (i) at least 75 % of the gross income of the Company for the taxable year is passive income, or (ii) at least 50% of the Company's assets are attributable to assets that produce or are held for the production of passive income. In each case, the Company must take into account a pro-rata share of the income and the assets of any company in which the Company owns, directly or indirectly, 25% or more of the stock by value (the "look-through" rules). Passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived from the active conduct of a trade or business and not derived from a related person), annuities and gains from assets that produce passive income. As a publicly traded corporation, the Company would apply the 50% asset test based on the value of the Company's assets.

     Because the Company believes it qualifies as a PFIC, unless a United States Investor who owns shares in the Company (i) elects (a section 1295 election) to have the Company treated as a "qualified electing fund", referred to as a "QEF" (described below), or (ii) marks the stock to market (described below), the following rules apply:

51

     A shareholder that makes a section 1295 election will be currently taxable on his or her pro-rata share of the Company's ordinary earnings and net capital gain (at ordinary income and capital gain rates, respectively) for each taxable year of the Company, regardless of whether or not distributions were received. The shareholder's basis in his or her shares will be increased to reflect taxed but undistributed income. Distributions of income that had previously been taxed will result in a corresponding reduction of basis in the shares and will not be taxed again as a distribution to the shareholder.

     A shareholder may make a section 1295 election with respect to a PFIC for any taxable year of the shareholder (shareholder's election year). A section 1295 election is effective for the shareholder's election year and all subsequent taxable years of the shareholder. Procedures exist for both retroactive elections and filing of protective statements. Once a section 1295 election is made it remains in effect, although not applicable, during those years that the Company is not a PFIC. Therefore, if the Company re-qualifies as a PFIC, the section 1295 election previously made is still valid and the shareholder is required to satisfy the requirements of that election. Once a shareholder makes a section 1295 election, the shareholder may revoke the election only with the consent of the Commissioner.

     If the shareholder makes the section 1295 election for the first tax year of the Company as a PFIC that is included in the shareholder's holding period, the PFIC qualifies as a pedigreed QEF with respect to the shareholder. If a QEF is an unpedigreed QEF with respect to the shareholder, the shareholder is subject to both the non-QEF and QEF regimes. Certain elections are available which enable shareholders to convert an unpedigreed QEF into a pedigreed QEF thereby avoiding such dual application.

     A shareholder making the section 1295 election must make the election on or before the due date, as extended, for filing the shareholder's income tax return for the first taxable year to which the election will apply. A shareholder must make a section 1295 election by completing Form 8621, attaching said Form to its federal income tax return, and reflecting in the Form the information provided in the PFIC Annual Information Statement, or if the shareholder calculated the financial information, a statement to that effect. The PFIC Annual Information Statement must include the shareholder's pro-rata shares of the ordinary earnings and net capital gain of the PFIC for the PFIC's taxable year or information that will enable the shareholder to calculate its pro-rata shares. In addition, the PFIC Annual Information Statement must contain information about distributions to shareholders and a statement that the PFIC will permit the shareholder to inspect and copy its permanent books of account, records, and other documents of the PFIC necessary to determine that the ordinary earnings and net capital gain of the PFIC have been calculated according to federal income tax accounting principles. A shareholder may also obtain the books, records and other documents of the foreign corporation necessary for the shareholder to determine the correct earnings and profits and net capital gain of the PFIC according to federal income tax principles and calculate the shareholder's pro-rata shares of the PFIC's ordinary earnings and net capital gain. In that case, the PFIC must include a statement in its PFIC Annual Information Statement that it has permitted the shareholder to examine the PFIC's books of account, records, and other documents necessary for the shareholder to calculate the amounts of ordinary earnings and net capital gain. A shareholder that makes a Section 1295 election with respect to a PFIC held directly or indirectly for each taxable year to which the Section 1295 election applies must comply with the foregoing submissions.

     Because the Company's stock is "marketable" under section 1296(e), a United States Investor may elect to mark the stock to market each year. In general, a PFIC shareholder who elects under section 1296 to mark the marketable stock of a PFIC includes in income each year an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the shareholder's adjusted basis in such stock. A shareholder is also generally allowed a deduction for the excess, if any, of the adjusted basis of the PFIC stock over the fair market value as of the close of the taxable year. Deductions under this rule, however, are allowable only to the extent of any net mark to market gains with respect to the stock included by the shareholder for prior taxable years. While the interest charge regime under the PFIC rules generally does

52

not apply to distributions from and dispositions of stock of a PFIC where the United States Investor has marked to market, coordination rules for limited application will apply in the case of a United States Investor that marks to market PFIC stock later than the beginning of the shareholder's holding period for the PFIC stock.

     Special rules apply with respect to the calculation of the amount of the foreign tax credit with respect to excess distributions by a PFIC or inclusions under a QEF.

Controlled Foreign Corporations

     Sections 951 through 964 and Section 1248 of the Internal Revenue Code, referred to as the "Code", relate to controlled foreign corporations, referred to as "CFCs". A foreign corporation that qualifies as a CFC will not be treated as a PFIC with respect to a shareholder during the portion of the shareholder's holding period after December 31, 1997, during which the shareholder is a 10% United States shareholder and the corporation is a CFC. The PFIC provisions continue to apply in the case of a PFIC that is also a CFC with respect to shareholders that are less than 10% United States shareholders.

     The 10% United States shareholders of a CFC are subject to current United States tax on their pro-rata shares of certain income of the CFC and their pro-rata shares of the CFC's earnings invested in certain United States property. The effect is that the CFC provisions may impute some portion of such a corporation's undistributed income to certain shareholders on a current basis and convert into dividend income some portion of gains on dispositions of stock, which would otherwise qualify for capital gains treatment.

     The Company does not believe that it will be a CFC. It is possible that the Company could become a CFC in the future. Even if the Company were classified as a CFC in a future year, however, the CFC rules referred to above would apply only with respect to 10% shareholders.

Personal Holding Company/Foreign Personal Holding Company/Foreign Investment Company

     A corporation will be classified as a personal holding company, or a "PHC", if at any time during the last half of a tax year (i) five or fewer individuals (without regard to their citizenship or residence) directly or indirectly or by attribution own more than 50% in value of the corporation's stock and (ii) at least 60% of its ordinary gross income, as specially adjusted, consists of personal holding company income (defined generally to include dividends, interest, royalties, rents and certain other types of passive income). A PHC is subject to a United States federal income tax of 39.6% on its undistributed personal holding company income (generally limited, in the case of a foreign corporation, to United States source income).

     A corporation will be classified as a foreign personal holding company, or an "FPHC", and not a PHC if at any time during a tax year (i) five or fewer individual United States citizens or residents directly or indirectly or by attribution own more than 50% of the total combined voting power or value of the corporation's stock and (ii) at least 60% of its gross income consists of foreign personal holding company income (defined generally to include dividends, interest, royalties, rents and certain other types of passive income). Each United States shareholder in a FPHC is required to include in gross income, as a dividend, an allocable share of the FPHC's undistributed foreign personal holding company income (generally the taxable income of the FPHC, as specially adjusted).

     A corporation will be classified as a foreign investment company, or an "FIC", if for any taxable year it: (i) is registered under the Investment Company Act of 1940, as amended, as a management company or share investment trust or is engaged primarily in the business of investing or trading in securities or commodities (or any interest therein); and (ii) 50% or more of the value or the total combined voting power of all the corporation's stock is owned directly or indirectly (including stock owned through the application of attribution rules) by United States persons. In general, unless an FIC elects to distribute 90% or more of its

53

taxable income (determined under United States tax principles as specially adjusted) to its shareholders, gain on the sale or exchange of FIC stock is treated as ordinary income (rather than capital gain) to the extent of such shareholder's ratable share of the corporation's earnings and profits for the period during which such stock was held.

     The Company believes that it is not and will not be a PHC, FPHC or FIC. However, no assurance can be given as to the Company's future status.

United States Information Reporting and Backup Withholding

     Dividends are generally subject to the information reporting requirements of the Code. Dividends may be subject to backup withholding at the rate of 31% unless the holder provides a taxpayer identification number on a properly completed Form W-9 or otherwise establishes an exemption.

     The amount of any backup withholding will not constitute additional tax and will be allowed as a credit against the United States Investor's federal income tax liability.

Filing of Information Returns

     Under a number of circumstances, a United States Investor acquiring shares of the Company may be required to file an information return. In particular, any United States Investor who becomes the owner, directly or indirectly, of 10% or more of the shares of the Company will be required to file such a return. Other filing requirements may apply and United States Investors should consult their own tax advisors concerning these requirements.

     Not Applicable.

     Not Applicable.

     The Company files annual reports and furnishes other information with the SEC. You may read and copy any document that we file at the SEC's Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 or by accessing the Commission's website (http://www.sec.gov). The Company also files its annual reports and other information with the Canadian Securities Administrators via SEDAR (www.sedar.com).

     Copies of the Company's material contracts are kept in the Company's administrative headquarters.

     None.

Item 11. Quantitative and Qualitative Disclosures about Market Risk

     Not Applicable.

54

Item 12. Description of Securities Other than Equity Securities

     Not Applicable.

Part II

Item 13. Defaults, Dividend Arrearages and Delinquencies

     None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

     None.

Item 15. Controls and Procedures

     The Chief Executive Officer and the Chief Financial Officer of the Company are responsible for designing internal controls over financial reporting, or causing them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. The Company assessed the design of the internal controls over financial reporting as at December 31, 2007 and concluded that there are material weaknesses in internal controls over financial reporting, which are as follows:

     The weaknesses and their related risks are not uncommon in a company the size of Avino because of limitations in size and number of staff. The Company believes it has taken initial steps to mitigate these risks by consulting outside advisors and involving the Audit Committee and Board of Directors in reviews and consultations where necessary. However, these weaknesses in internal controls over financial reporting could result in a more than remote likelihood that a material misstatement would not be prevented or detected. The Company believes that it must take additional steps to further mitigate these risks by consulting outside advisors on a more regular and timely basis.

     There have been no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Item 16A. Audit Committee Financial Expert

     The board of directors determined that Mr. Gary Robertson is qualified as an Audit Committee Financial Expert. Mr. Robertson is independent as determined by the National Association of Securities Dealers listing standards.

Item 16B. Code of Ethics

     The Company has not currently adopted a code of ethics but is evaluating its internal procedures to determine the necessity of same. In the event that it is determined a code of ethics is necessary, an appropriate code will be implemented.

55

Item 16C. Principal Accountant Fees and Services

     The independent auditors for the eleven-month period ended December 31, 2007 and for the year ended January 31, 2007 was Manning Elliott LLP. For the fiscal years ending January 31, 2006 and 2005 the independent auditor was Vellmer & Chang, Chartered Accountants (formerly Hoogendoorn Vellmer, Chartered Accountants).

Audit Fees

     The aggregate fees billed by Manning Elliott LLP for professional services rendered for the audit of the Company's eleven-month period ended December 31, 2007 was $85,000 (January 31, 2007: $101,800). The aggregate fees billed by Vellmer & Chang for the audit of the Company's annual financial statements for the fiscal year ended January 31, 2006 was $40,780.

Audit-Related Fees

     The audit-related fees billed by the Company’s independent auditors for the eleven-month period ended December 31, 2007 was $4,636 (January 31, 2007: $5,438).

Tax Fees

     There were no tax fees billed by the Company's independent auditors for the eleven-month period ended December 31, 2008. The aggregate tax fees billed by the Company's independent auditors for the January 31, 2007 fiscal year were $2,180, which were related to the preparation of the corporate tax return for the January 31, 2007 fiscal year.

All Other Fees

     There were no aggregate fees billed for any other professional services rendered by the Company's independent auditors for the eleven month period ended December 31, 2007. The aggregate fees billed by the Company's independent auditors for advisory and review services relating to the Company's annual report on Form 20-F was $7,500 for the year ended January 31, 2007.

     The audit committee approved 100% of the fees paid to the principal accountant for audit-related, tax and other fees in the fiscal year 2007. The audit committee pre-approves all non-audit services to be performed by the auditor in accordance with the audit committee Charter. There were no hours expended on the principal accountant's engagement to audit the Company's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.

Item 16D. Exemptions from the Listing Standards for Audit Committees

     Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     None.

56

Part III

Item 17. Financial Statements

     The following financial statements pertaining to the Company are filed as part of this Transition Report:

_____________
* Previously filed.

57

AVINO SILVER & GOLD MINES LTD.

Consolidated Financial Statements

for the Eleven-Month Period Ended December 31, 2007

and the Years Ended January 31, 2007 and 2006

To the Shareholders of
Avino Silver & Gold Mines Ltd.

We have audited the consolidated balance sheets of Avino Silver & Gold Mines Ltd. as at December 31, 2007 and January 31, 2007 and the consolidated statements of operations and comprehensive loss, deficit, and accumulated other comprehensive loss, and cash flows for the eleven-month period ended December 31, 2007 and the year ended January 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2007 and January 31, 2007 and the results of its operations and its cash flows for the eleven-month period ended December 31, 2007 and the year ended January 31, 2007 in accordance with Canadian generally accepted accounting principles.

The statements of operations, deficit and cash flows for the year ended January 31, 2006 were audited by another independent registered public accounting firm which expressed an opinion without reservation on these financial statements in its report dated May 31, 2006.

MANNING ELLIOTT LLP

CHARTERED ACCOUNTANTS

Vancouver, British Columbia

April 25, 2008

The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph when the financial statements are affected by conditions and events that cast substantial doubt on the Company’s ability to continue as a going concern, such as those described in Note 1 to the financial statements. Our report to the shareholders dated April 25, 2008, is expressed in accordance with Canadian reporting standards which do not permit a reference to such conditions and events in the auditors’ report when these are adequately disclosed in the financial statements.

MANNING ELLIOTT LLP

CHARTERED ACCOUNTANTS

Vancouver, British Columbia

April 25, 2008

Approved on behalf of the Board:

The accompanying notes are an integral part of these consolidated financial statements

The accompanying notes are an integral part of these consolidated financial statements

The accompanying notes are an integral part of these consolidated financial statements

The accompanying notes are an integral part of these consolidated financial statements

NOTE 1 - NATURE OF OPERATIONS

Avino Silver & Gold Mines Ltd. (the “Company” or “Avino”) was incorporated in 1969 under the laws of the Province of British Columbia, Canada. The Company’s principal business activities include the acquisition, exploration and development of mineral properties. The Company owns interests in mineral properties located in Durango, Mexico and in British Columbia and the Yukon, Canada.

The Company is in the exploration stage and is in the process of determining whether these properties contain ore reserves which are economically recoverable.

The recoverability of amounts recorded as mineral properties and related deferred costs is dependent upon the discovery of economically recoverable reserves, maintenance of the Company’s legal interests in its mineral claims, obtaining further financing for exploration and development of its mineral claims, re-development of its mining and processing operations and commencement of future profitable production, or receiving proceeds from the sale of all or an interest in its mineral properties.

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assume that the Company will realize its assets and discharge its liabilities in the normal course of business. The Company will be required to raise new financing through the sale of shares or issuance of debt to continue with the exploration and development of its mineral properties. Although management intends to secure additional financing, there can be no assurance that management will be successful in its efforts to secure additional financing or that it will ever develop a self-supporting business. These factors together raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 2 - CHANGE IN FISCAL YEAR END

During 2007, the Company changed its fiscal year end from January 31^st to December 31^st to correspond to the December 31^st fiscal year end of the Company’s Mexican operating subsidiaries, which report on a calendar year basis. The effect of this change resulted in a current fiscal period of eleven months ended December 31, 2007, for the consolidated statements of operations and comprehensive loss, deficit and accumulated other comprehensive income, while the comparative figures are for twelve-month periods ended January 31^st.

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (continued)

The mine mill, machinery, plant facilities and equipment (see Note 5) were acquired on July 17, 2006 and are not in active use, as the Company is in the process of refurbishing these assets. Accordingly, these assets are considered to be under reconstruction and no amortization has been recorded on them.

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (continued)